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Questions raised over family farmland sale

Agricultural land deal between a son and his parents raises questions of value, tax and potential conflicts, a recent London Tax Discussion Group meeting hears.

March 2020

This month, one of the Croydon and South East London Tax Discussion groups’ queries concerns an elderly couple who own agricultural land and buildings in Surrey. The land is currently used by their son’s sole trader business and has potential residential property development value.

They explained their son had agreed to acquire the land and buildings from them at the market value. However, there were a number of issues arising from the situation.

The query that they had was that their son had also confirmed that he would like to pay the taxes due on the property. They were also unsure regarding the market value of the land as well, given its agricultural value and potentially redevelopment value.

They had acquired the land and buildings for £50,000 in 1998 and they consider that the value of the property could be worth significantly over £250,000, if planning permission had been obtained to develop the site. However, no planning permission had been obtained and furthermore the land and buildings were restricted to agricultural use only.

The initial discussion concerned the market value of the land. Tax legislation sets out the value of the land and buildings should be valued at the time and with the conditions applying at that date, as though the transaction was between a willing buyer and willing seller with full information.

Accordingly, the market value of the land would be higher than the agricultural value, but only include an element of the development value for the “hope” that planning permission would be granted.

The second area discussed concerned the reimbursement of the elderly couple for the taxes due. This would not be an allowable cost for the son, either against his sole trade income or against the base cost of land and buildings. The monies would be a gift to his parents.

The final area which was discussed was whether the accountant involved could act for the son as well as his elderly parents. It was felt that provided the family recognised that they were engaging the same accountant to advise each of them with regard to the transaction, and that there could be an inherent conflict between them, it could be acceptable to act on behalf of all of them, but all should be wary of any potential conflicts.

Each month, with the exception of July and August, the Tax Discussion Groups in Croydon and South East London meet to discuss client tax issues on a no-names basis. These meetings are free to attend and normally cover over a dozen tax issues raised by those attending. If you are interested in attending, please contact megan.fitzpatrick@icaew.com.

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