We act for a number of farmers who are diversifying their activities to bolster farm income. A number have turned to equestrian activities to generate income, dealing with livery and stabling on a full or do-it-yourself basis.
We are having difficulty in establishing whether or not the cost of buildings for this equestrian activity qualifies for agricultural buildings allowance. The problem appears to rely on the fact that expenditure must be for the purposes of 'husbandry' and that this is not defined in any tax legislation.
We act for a number of farmers who are diversifying their activities to bolster farm income. A number have turned to equestrian activities to generate income, dealing with livery and stabling on a full or do-it-yourself basis.
We are having difficulty in establishing whether or not the cost of buildings for this equestrian activity qualifies for agricultural buildings allowance. The problem appears to rely on the fact that expenditure must be for the purposes of 'husbandry' and that this is not defined in any tax legislation.
Some farmers have bought in new 'timber and block' and constructed completely new stabling units, whilst others have converted older outbuildings at varying levels of cost for the creation of stables.
Readers' views on the reliefs available (if any) would be welcome.
(Query T16,009) - Tackman.
The fact that the definition in section 362(1), Capital Allowances Act 2001 is of the 'inclusive' variety should not be taken as meaning that the word 'husbandry' is of uncertain meaning. Section 832(1), Taxes Act 1988 provides that farming has to be construed by reference to 'farm land' which, with various exclusions, 'means land in the United Kingdom wholly or mainly occupied for the purposes of husbandry'.
One of the exclusions is market garden land. Market gardening involves food production but has, according to the historic case law on the distinction, necessitated the employment of a higher staff-to-area ratio than traditional farming. It is therefore appropriate to view the extensions of the concept of husbandry in section 362(1) within such a context. These are:
(a) intensive livestock or fish rearing (usually done inside a building, or in a tank, rather than on the land itself, and therefore arguably not husbandry on the basis of the analysis in two cases heard between 1925 and 1947); and
(b) short rotation coppicing (not by any stretch of the imagination a type of farming, but equated with that for income tax purposes since the encouragement of biomas-generated electricity).
The Inland Revenue should, in consequence, be expected to draw the line short of 'horseycultural' activities involving stabling, even though the grazing of animals is also involved. That grazing is not part of a food (or wool) production process.
Although the concept of husbandry has sometimes been distinguished in terms from that of agricultural use, which pertains for inheritance tax agricultural property relief purposes, the two concepts are related. The fact that section 115(4), Inheritance Tax Act 1984 (which was a late addition to the code) provides for the normal meaning of 'agricultural land or pasture' to be extended to cover stud farms (the 'husbandry' status of which had been the subject of differing decisions in the courts between 1919 and 1933), is, moreover, suggestive of other forms of horseyculture not being covered by that term. More materially, it has been held in Wheatley's Executors v Commissioners of Inland Revenue SpC 149 that the grazing of horses does not qualify as an agricultural activity for this purpose.
Furthermore, two cases on the meaning of 'husbandry' from the pre-War Schedule B farming days are in point. In Monro and Cobley v Bailey 17 TC 607 a bulb growing business which also grew general farm crops was held not to qualify on the basis that the former was the main line of business. In Commissioners of Inland Revenue v Melross 19 TC 607 the breeding of foxes in pens and open runs, while similar to husbandry, was held not to be that, seemingly on the basis that neither the foxes nor their produce was ultimately for human consumption.
It is therefore quite clear that the authorities are heavily weighted against livery and stabling coming within the concept of husbandry. Section 361(1)(b), Capital Allowances Act 2001 lays down the following two preconditions to qualification for an agricultural buildings allowance:
(i) that the land was 'occupied wholly or mainly for the purposes of husbandry'; and
(ii) that the expenditure was incurred 'for the purposes of husbandry on that land'.
The former farmers do not qualify under either head in relation to expenditure undertaken after the equestrian activities were in contemplation. - JdeS.
Originally I agreed with 'Tackman' insofar as there did not appear to be any Taxes Act definition of the word 'husbandry', which is confirmed by Simon's Direct Tax Service at B2.502. There are other references to this in Simon's, and also in the Revenue manuals. However, section 362, Capital Allowances Act 2001 does go some way in giving an answer:
'(1) In this Part "husbandry" includes -
(a) any method of intensive rearing of livestock or fish on a commercial basis for the production of food for human consumption; and
(b) the cultivation of short rotation coppice.
'(2) "Short rotation coppice" has the meaning given by section 154(3), Finance Act 1995 (meaning for general tax purposes: tree species planted at high density where stems harvested at intervals of less than ten years).'
It can therefore be seen that Part 1(a) relies on the production of what everyone (including horses) needs, whereas Part 1(b) is to do with tree planting and harvesting. In addition there are numerous tax cases, which can be used for definition purposes.
It appears that taking the meanings of husbandry and applying them to the queries raised does yield a rather negative answer.
Turning to the situations as described in respect of the buildings and their uses, the Revenue's Capital Allowances Manual gives guidance and also some planning ideas to facilitate possible claims for agricultural buildings allowance by the farming clients concerned:
'Paragraph 4565. First use not for the purposes of husbandry.
'The writing-down period begins when the expenditure is incurred. It does not begin when the building is brought into use.
'It is therefore possible for writing-down allowances to have been made during or after construction and before a building is brought into use. If when the building does come to be used, it is not used for the purposes of husbandry, any allowances which have been made are withdrawn and no further allowances are made … if the first use of a building is not for the purposes of husbandry, the expenditure will never qualify for agricultural buildings allowance even if the building is used for the purposes of husbandry in later years.' (Section 374, Capital Allowances Act 2001.)
Paragraph 4566 describes that a change of use has no effect on entitlement to agricultural buildings allowance:
'… If the conditions for claiming agricultural buildings allowance are satisfied when the expenditure on constructing a building is incurred and the first use of a building is for the purposes of husbandry, the expenditure qualifies for writing-down allowances for the full 25-year writing-down period without regard to the use of the building in later years.'
So for the farmers who are 'converting older outbuildings', the original allowances are not lost. However, for both these and the 'new timber and block' constructers, under section 374 there would be no entitlement to claim allowances in respect of current expenditure, unless the first use of the buildings qualified for the relief under section 369, Capital Allowances Act 2001, and only then were the buildings used for the equestrian activities concerned. - N.K.
Extract from a reply by 'Hodgy':
I would refer 'Tackman' to the replies given to a query from 'Fetlock', the answers to which were included in Taxation, 27 July 2000 at page 452. The querist asked if agricultural buildings allowances were available on the buildings used by a stud farm for sports horses used in dressage. I was that querist and my opinion was, and still is, that allowances should be available. The respondents were unanimous in their agreement, but the Inland Revenue has refused to budge.
The matter was discussed with industry bodies, but their attitude was that although it was terribly unfair, there was no interest in taking the matter forward. The end result is that as the tax at stake is not sufficient to warrant a challenge, the Inspector wins by default.
This is a very unsatisfactory state of affairs, but it demonstrates the hurdles that 'Tackman' is going to have to clear to win this argument.
