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Chapter IHTM24253

Document Cited in Related
Vincent
Published date20 March 2016
Record NumberIHTM24253
CourtHM Revenue & Customs

Where land is owned by an individual and that land is a source of income or profits for the individual or another person, the profits are chargeable to income tax (or corporation tax). The way in which those profits are taxed can provide a useful indication of the purpose for which the land is occupied and whether or not this is an agricultural purpose. It should not, however, be treated as conclusive for inheritance tax purposes as there are different factors to take into account for the different taxes.

Profits from income that arises from farming and from the exploitation of land may be taxed in two ways, either as profits from a trade or as profits from a property business. You will see profits from a trade reported in an individual’s income tax self-assessment return usually as income from self-employment or from a partnership. Profits from a property business fall under the heading of land and property.

Where a business is carried on by another person, for example a company or a trust, on land owned by an individual then the individual’s income tax self-assessment return may include dividends, income from employment or income from trusts. In these cases, it is necessary to look at how that other person is taxed to determine whether the profits are taxed as from a trade or from a property business.

If land is in use for the purposes of a farming business and the profits from that business are taxed as profits from a trade (either under sections 5 and 9 ITTOIA 2005 or under section 18 ICTA 1988, Case 1 Schedule D) then it is likely that the land is also occupied for agricultural purposes for inheritance tax. However, there are exceptions to that general principle and you should not base your decision only on the income tax treatment.

Unlike most trades, there are statutory definitions of farming and market gardening in section 996 ITA 2007.

“Farming” means the occupation of land wholly or mainly for the purposes of husbandry and includes hop growing, the breeding and rearing of horses and grazing of horses in connection with those activities, and the cultivation of short rotation coppice. “Market gardening” means the occupation of land as a...

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