BIM75610 - Farming losses: maintenance expenses: owner-occupied farms

Where relief for farming losses is precluded by the general rules for non-commercial trades (see BIM75615) or by the five year rule for farming losses (see BIM75620) a measure of relief against general income is provided by extra-statutory concession ESC/B5. The concession provided:

‘Where the owner-occupier of a farm in the UK makes a loss but is precluded by ICTA88/S384 or, in the case of a company, by ICTA88/S393A (3), from claiming relief against the tax on his general income because his farming is not carried on on a commercial basis and with a view to the realisation of profits, he may claim the same relief for the cost of maintenance, repairs, and insurance of his agricultural land (that is land, houses or other buildings occupied wholly or mainly for the purpose of husbandry) as can be claimed under ICTA88/S33 by the landlord of agricultural land. The question what proportion of expenditure on a farmhouse is agricultural and what proportion is domestic will be determined by reference to all the particular facts and circumstances of individual cases’.

This concession applied also to the owner-occupier of a farm in the UK who made a loss but was precluded by ICTA88/S397 from claiming relief against the tax on his or her general income because he or she incurred a loss in each of the prior five years.'

The following points should be borne in mind when considering claims:

Withdrawal of concession

The concession does not apply to periods after 5 April 2001 (IT cases) or 31 March 2001 (CT cases). The withdrawal was announced by paragraph 5 of the 1998 Budget Day Press Release IR12 dated 17 March 1998.

Concession applies only to owner-occupiers

The concession is limited to owner-occupiers. It does not apply to tenants.

Market gardening

The concession does not apply to market gardening.

Expenses allowable

The relief given is that which would be available to an agricultural landlord under ICTA88/S33 (RE1900 onwards). General guidance on the expenditure allowable is given at PIM2000 onwards. ICTA88/S33 has been abolished by the new Schedule A for the unincorporated for periods after 5 April 1995 but remained for companies until 31 March 1998. Despite the new Schedule A rules, relief may still be claimed by the unincorporated for expenditure incurred after 5 April 1995 which would have qualified prior to the abolition of Section 33.

Management expenses

The absence of a reference to `management expenses' in the text of the concession should not be taken as excluding the possibility that such expenses may be allowable. But the allowable expenses are those of general management of the whole estate such as would have been claimed by the owner under ICTA88/S33 if he or she had let the land.

Capital allowances

Capital allowances on plant and machinery may be allowed to the extent that allowances would be available under ICTA88/S33. An appropriate adjustment should be made to distinguish the use for estate management purposes which is allowable from that for ordinary farming operations which is not.

ABA not included

Agricultural buildings allowances are not among the allowances referred to in ICTA88/S33 and do not, therefore, fall within extra-statutory concession ESC/B5.

Relief limited to Case I loss

Relief is limited to the amount of the expenses forming part of the Case I loss (plus any capital allowances allowable under the concession), even if the expenses contributing to the loss include expenses which could be claimed under ICTA88/S33 in excess of the loss. If, for example, the accounts showed losses of £5,000 but the expenses claimed in computing the losses included amounts totalling £7,000 which would have been allowable to an agricultural landlord under ICTA88/S33 the relief would be limited to £5,000.

Time limit

The concession enables the taxpayer to claim relief on sums which could have been claimed under ICTA88/S33. It therefore has the same time limits. Claims under ICTA88/S33 are dealt with as if they were capital allowances given by discharge or repayment (Section 33(1)). The time limit for claiming such allowances against general income is two years after the end of the year of assessment concerned (Section 141(3), Capital Allowances Act 1990). From 1996- 97 onwards the time limit is the first anniversary of the 31 January next following the year of assessment (CAA01/S382 (6)).