Spring is just around the corner and after a difficult winter due to the wet weather and flooding, many businesses in Ryedale will be considering how to make the tourist season of 2020 a profitable one. Ryedale and its neighbouring areas of Hambleton and the Yorkshire Wolds are blessed with some of the most beautiful countryside in the United Kingdom and many people choose to explore these places on horseback while they are on holiday. There are several trekking centres and riding holiday providers locally. But if you own such an establishment or are considering setting one up, perhaps as a farm diversification project, have you considered whether your business will be tax efficient when you come to pass it on to the next generation?
Riding or Trekking Centres are neither agricultural enterprises nor farming and therefore, Agricultural Property Relief from Inheritance Tax does not apply. A Stud Farm diversifying into riding holidays and trekking may gain Agricultural Property Relief for the Stud business, but not for any equestrian diversification project that doesn’t involve breeding horses or ponies. This is because a Stud is defined as agricultural property under the Inheritance Tax Act 1984. It may be possible, however, to gain Agricultural Property Relief for buildings used to store farm machinery and equipment, even if such items are used for the trekking business as well as the Stud. HMRC will consider whether the buildings in question were used for agricultural purposes for two years prior to the death of the business owner when deciding whether to grant Agricultural Property Relief. This is worth bearing in mind if you are a Stud owner looking to diversify into equine tourism and thinking about how to plan for the succession of your business.
If you are a farmer with stables and a cottage or potential barn conversions on site or if you have a farmhouse with enough space to accommodate Bed and Breakfast guests, you may decide to diversify into providing riding holidays where guests either ride your horses on guided treks or bring their own horse on holiday with them. But how might this affect your estate when it comes to passing the business on to the next generation? Well, as long as your riding holiday operation is a business and was operating as such for the two years prior to your death, then it will attract Business Property Relief.
Whether the Relief is at a rate of 100% or 50% will depend on how the business is structured and how much of it a particular individual owns. If one person owns all of the business property or has an interest in it, then the 100% relief will apply. If there is land or buildings, plant or machinery which was used wholly or mainly for the purposes of a business carried on by a company where the deceased was a controlling shareholder or a partner within a partnership agreement, then the 50% relief will apply.
If the business provides “hotel accommodation” for horses in that it provides other services such as mucking out and feeding, rather than pure rental income generated by letting out the stables, then the riding holiday business will be assessable by HMRC as trading income and both the business and the property are likely to be entitled to Business Property Relief.
It is important to plan ahead when considering branching out into an equestrian business and this includes considering the impact such a business may have on your estate after you die. Even if you already own a profitable and successful riding holiday business, such matters should not be overlooked. Spring is a time of renewal, so why not use it as an opportunity to get your business tax and succession planning in order? Then you can get out and enjoy the wonderful springtime hacking on the North York Moors and the Howardian Hills worry free!
Contact Lucy Steven, Private Client Solicitor, in our Agricultural Law team on 01653 600070 for more information and advice.