UK: Rural Update - Autumn 2011

NEWS IN BRIEF

• A new Law of Property Act has been published in draft which aims to modernise the law on easements and covenants. The most radical change will be the abolition of restrictive and other land covenants, which will be replaced by a new land obligation. Landowners will not be able to enforce land obligations unless they can prove that they own land near to the property which is subject to the obligation. The new law should also make it easier to claim contributions to the cost of complying with obligations, such as the maintenance of accessways.
• Mineral royalties relief - a reminder that the Office of Tax Simplification intends to abolish this relief from 6 April 2013. This will mean mineral royalties will be subject to income tax alone rather than both income and capital gains tax. The consultation period ended on 31 August 2011.
• The Energy Bill proposes to make it unlawful from April 2018 to rent out a house or business premises unless it has a minimum energy efficiency rating of 'E'. It is not intended that this will apply if landlords have carried out the maximum package of measures funded under the Green Deal and/or the Energy Company Obligation. There is a concern that the obligation will remain even if there is no funding available, which will result in a considerable cost to landlords of let rural properties.
• The CLA has obtained a leaked copy of proposed new legislation in relation to changes to the Common Agricultural Policy. The proposals seek to reduce payments over €150,000, with increasing cuts applying as the value of the payment increases, with a total cap of €300,000. Attempts to artificially split ownership to mitigate the impact of the changes are anticipated by the proposed legislation. The proposals are due to be published on 12 October 2011.

FARMHOUSE RELIEF

The First Tier Tax Tribunal has given a welcome decision for landowners in the recent case of HMRC v Golding, involving the application of agricultural property relief ('APR') to farmhouses.

Mr Golding died in March 2007 owning a home on a smallholding of approximately 16 acres in Staffordshire. Mr Golding farmed the 16 acres for 65 years but the intensity and profitability of the farming dropped during the later years of his life. Towards the end of Mr Golding's life, much of the farming produce was used for Mr Golding's own consumption and only modest profits were being made overall. On his death, Mr Golding's executors claimed APR for both the farmhouse and the 16 acres of farmland.

HMRC accepted that the 16 acres of farmland qualified for APR but denied APR in respect of the farmhouse, which was a three bedroom property in a state of disrepair. The principal basis of HMRC's objection was that the farmhouse was not of a 'character appropriate' to the farmland.

The Tribunal rejected HMRC's arguments. It is positive news for landowners that HMRC failed in its attempt to narrow the definition of 'character appropriate'. In particular, HMRC's argument that there is a single objective test for APR based upon the financial viability of the farming operation to sustain the farmhouse was rejected. The decision confirmed that the correct test to be applied in APR claims for farmhouses is a broad approach involving an analysis of a number of different factors (as set out in Antrobus). Each case has to be looked at 'in the round' and it was acknowledged that a drop in farming productivity or profits as farmers grow older does not in itself mean a farmhouse will fail to attract APR.

LOCALISM BILL 2010

The Localism Bill ('the Bill'), published in December 2010, is a wide-ranging bill set to affect local and rural communities. It seeks to achieve a substantial and lasting shift of power from central government to local authorities and communities in a bid to reduce bureaucracy and inefficiency for rural and local communities and authorities. The following policies are most relevant for estate and property owners.

Enforcement

It is proposed that planning officers can take enforcement action in relation to breaches of planning controls, irrespective of whether the statutory time limits have expired. Such a policy is likely to have an impact on both the buying and the selling of properties and require additional due diligence and attention to planning issues.

Acquisition of community assets

The Bill will impose a duty on local authorities to compile and maintain a list of assets which have value to the community. The community itself can make nominations, and lists are likely to include village shops, pubs and leisure centres.

If community assets come up for sale, it is proposed that community groups should be given adequate time to put in a bid and raise money to purchase the asset. This raises questions as to how a scheme would actually operate in practice. The government is currently considering regulations to compensate landowners to address the period of protection offered to community groups. Estates with extensive and diversified land holdings could, in the future, find themselves with properties subject to 'community asset' designation, which may discourage landowners from making property available for specific community needs, eg village cricket.

The most recent guidance suggests that transfers on death will be excluded from the provisions, however, it is less clear whether a lifetime gift will benefit from a similar exemption.

Neighbourhood Development Orders

The Bill intends to give communities the power to take forward development by way of neighbourhood development orders ('NDO's'). NDOs will give developments planning permission but within carefully set parameters and safeguards. Only limited groups will be able to apply for NDOs and each application for an NDO will be subject to independent examination. If there is more than a 50 per cent vote in support from the community, then planning permission will be granted (unless inconsistent with EU obligations). It is anticipated that there will be a community right to build orders (which will be a form of NDO), but these will grant planning permission for specific developments on specific sites.

Community Infrastructure Levy

The Community Infrastructure Levy the ('CIL') is a charge on new buildings meeting requirements set by councils. The payments received from the CIL are then used to finance local and sub-regional infrastructure projects which are in the councils' development plans. The Bill intends to allow the CIL to be used towards the cost of maintaining current infrastructures (as well as new infrastructure) and to give greater powers to determine the level of the CIL paid.

The above is only a taster of what is to come but it is clear that the Bill proposes significant changes.

BE CAREFUL WHAT YOU PROMISE ...

A 2011 decision in the High Court appears to further undermine the principle that a person has complete freedom of testamentary capacity. Suggitt v Suggitt takes to an extreme the potential for claims against a will under the principle of proprietary estoppel.

The case involved a disagreement between siblings as to the distribution of their father's estate after his death. The father owned just over 400 acres of farmland with farm buildings, residential properties, cash and chattels, together valued at just over £4m net of inheritance tax.

During the father's lifetime, the son worked on the farm for his father and had been encouraged to become involved in the business. The son did not receive a wage for his work but he did receive food, lodging, living expenses and a share of the grain harvest and sheep sales. He attended an Agricultural College, but did not complete his studies. The father was disappointed in his son's behaviour and his attitude towards the farm.

Under his will, the father left his entire estate to one of his daughters, with the request that she pass the farmland to the son, if she felt he was sufficiently responsible to manage it. The son made a claim against the estate on the basis of proprietory estoppel.

The principle of proprietory estoppel requires a person to prove that a promise has been made to him, that he has relied on that promise and that he has suffered detriment as a result of his reliance on the promise. The courts have wide discretion to come to a decision based on the facts of the case to ensure a just outcome.

The judge found in favour of the son despite being unimpressed by the accuracy and reliability of his evidence. It was held that, although the father was repeatedly disappointed by his son, he had wished for him to take over the farming business and had made certain representations to this effect during his lifetime, even though this was contradicted by the intent expressed in his Will. The judge found that a certain amount of detrimental reliance was placed on these representations, as the son had positioned his life on the basis that he would one day inherit the farm. He was awarded the farmland and farm machinery and the house in which he lived on the farm. The balance of the estate remained with the daughter.

Suggitt is likely to be seen as a 'high water mark' for proprietory estoppel cases, and the judge conceded that the facts were not as strong in support of the claim as they have been in other recent cases. Equally, it could be argued that there was little detriment since the son received food, lodging, living expenses and a share of the sales. The moral of the case is to be careful with what you promise, particularly if you do not in fact intend to confer a benefit!

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.