UK: Lease Or Licence? HMRC Is Not Taking A Lenient View

Last Updated: 11 December 2017
Article by Jennie Wheildon

It has come to our attention that HMRC is taking a very close look at grazing licences and Profit à Prendre agreements in the context of claims for APR.

In a number of cases, the District Valuer (DV) has determined that land used for grazing by a third party, ostensibly under a grazing licence, is not occupied by the landowner for agricultural purposes. This assessment has led to a number of claims for APR being rejected, not only on the land in question but also the farmhouse (in circumstances where most of the land has been either let or licensed to others).

What is a grazing licence?

A grazing licence allows a third party to graze their animals for a short period (traditionally they were used from April to October). It does not confer any rights over the land and you, as the landowner, remain in occupation. This means that you can continue to claim BPS on the land as well as retaining certain tax advantages (for instance a grazing fee counts as trade rather than investment income, allowing you to set more costs against a grazing fee than you can against rent).

What is Profit à Prendre?

Less common than a grazing agreement, it allows someone to take something (in this case, grass by either mowing or grazing) from another's land. You, as the landowner, retain occupancy of the land but, in return for a fee, you allow another person to graze their livestock on what is essentially your crop of grass. Similar principles to grazing licences apply although there are more obligations on the landlord to ensure that the crop of grass remains in good condition.

Occupation for agricultural purposes

Whether or not you have granted a grazing licence or Profit à Prendre it is crucial that you document the agreement, ideally in writing (although verbal agreements are legally acceptable, written agreements are less open to misinterpretation). You must be able to prove that you, as the landowner, remain in occupation for agricultural purposes but, as far as the DV is concerned, this occupation must be active. In other words the agreement (in the words of presiding judge, Lord Flemming) should be clearly restricted to 'the sale of a growing crop' rather than 'a let of the lands themselves'. This means that not only must you be responsible for maintaining the boundaries but you must also show that you are actively managing the pasture for agricultural purposes, such as rolling and fertilising it. Your licensee must have no obligations other than the welfare of his or her livestock.

Evidence is crucial

If you renew your grazing licences on a regular basis (and most landowners do, rather than just for the grass-growing season) you should insert a clause stating that renewal is not automatic. The agreement must also specify that the licence does not carry any obligations, such as boundary repairs or general maintenance. If it does it will be in danger of taking on the characteristics of a tenancy.

The DV will examine each claim on its own merits so it is crucial that you keep records that prove that you are in active occupation of the land. This can include RPA inspection records; receipts for fencing, herbicides, and fertiliser; contractors' invoices for silage or haymaking and so on. It is also imperative to use the correct language – when recording income from the licence, refer to it as fees or payment. Do not refer to it as rent – and make sure your accountant uses the correct terminology when drawing up your accounts.

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.

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