BIM55255 - Farming: farmhouse rent

Farmhouse rents pose particular problems in arriving at a private use adjustment because the rent charged is often charged for the whole of the farm without a separate amount being attributable to the farmhouse itself.

Farmers are assessed on the profits or gains of their farming activities as a trade because ICTA88/S53 (1) or ITTOIA/S9 specifically directs that farming profit shall be so assessed. The definition of `farming' for this purpose appears in ICTA88/S832 (1) which takes as its starting point the definition of `farm land' as meaning `land in the United Kingdom wholly or mainly occupied for the purposes of husbandry, but excluding any dwelling or domestic offices, 'and goes on to say that farming shall be construed accordingly.

The original definition of farmland specifically included farmhouses and farm buildings and following the adverse decision in Korner and Others v CIR [1969] 45TC287 it was amended to restore the status quo. It is worth quoting from the speech of the Minister, Mr Taverne, who said in the committee stage of the debate on 16 June 1969,

”everyone in the committee wants to achieve the same purpose, which is to put the practiceback where it was before the Korner case - that is, to apportion expenditure both on thefarmhouse which is used as a dwelling house and on farm properties in such a way that whatis a proper business expense for the running of the farm is allowed, and what is expenditureon domestic purposes is not allowed; the clause, I am advised, will restore the previouspractice”

The new definition in ITA/S996 omits the reference to farmhouses but there has been no change in the law. The wholly and exclusively rule now in ITTOIA/S34 adequately covers the point.

Farmers are assessed to tax as occupiers of farm land (excluding residential premises) and it is only the rent of the farm land which can properly be deducted as an expense wholly and exclusively incurred for the purposes of the farming trade. The fact that both the farmhouse and the farm land form the subject of a single lease cannot make the farmhouse part of the farm land. As the rent paid covers both the farmhouse and farmland, it is necessary to apportion the total to arrive at the rent appropriate to each.

The proportion of the rent which relates to the farmhouse will depend on the facts of the case concerned. The taxpayer may argue that the part of the rent relating to the farmhouse is represented by the difference between value of land without a house and the value of land with a house. However that difference is not of direct relevance since you are dealing with land with a house. On the other hand pointing to rents commanded in the open market by similar properties which are not farmhouses may well give a figure which is too high since the fact is that the farmhouse is a farmhouse with the associated inconvenience of being used for the farming business. But these two views will, at least, serve to show the range within which a reasonable figure would be expected to lie.

In the past adjustments were often based on the gross annual value and you may still see them in some cases. Adjustments based on gross annual value may well have produced realistic figures in days gone by but are unlikely to do so nowadays since gross annual values have not been adjusted for many years. Your aim should therefore be to produce an adjustment which is realistic in amount and fair to both sides.

In cases of difficulty the District Valuer will be able to assist you in determining where the correct answer lies. The principles to apply when using his services are set out in BIM51505 - BIM51550.

The next step is to establish the proportion of the rent relating to the farmhouse which is to be allowed because it represents business use. This is, of course, a question of fact to be decided by agreement or by the Commissioners in the event of disagreement.