Agricultural Property Relief on Hay Growing

The tax treatment of hay production is a grey and complex area, and anyone who grows hay to any significant extent as part of their business should familiarise themselves with the tax position.

 

Legal Precedents

There are a number of relevant tax cases that provide guidance. Perhaps one of the most important is the Estate of Maureen W Vigne (Deceased) v HMRC [2017]. Whilst this case predominantly dealt with a Business Property Relief (BPR) claim for a livery business, it also considered an Agricultural Property Relief (APR) claim on a hay field. The APR claim was unsuccessful on the basis that no hay crop had been taken in the two years preceding the death of the deceased. In short, it was held that the taking of an occasional hay crop failed to meet the general definition of agriculture as the cultivation of the soil to grow crops. The outcome suggests that if there had been a regular hay crop cultivated and taken, the land would have qualified for APR.

 

The Consumer Conundrum 

However, HMRC have also challenged the availability of APR on hay production based on who the end consumer of the hay is. Whilst there is no statutory definition of ‘agriculture’, HMRC’s interpretation is ‘the cultivation of land to produce food for human consumption either directly or indirectly’. Accordingly, their position is that growing hay is a qualifying activity only when it is grown for consumption by livestock, working horses or horses used in the food chain. 
 

The Disparity

This implies that hay grown or sold for any other reasons, such as livery, pet bedding, etc., is not grown for agricultural purposes, and a claim for APR is likely to be challenged by HMRC. That said, many other land uses which do not result in an end product in the human food chain, the growing of turf and the cultivation of bio-fuel crops, to name but a few, have all been deemed as qualifying for APR, so it seems nonsensical (and somewhat unfair) that the growing of hay for non-human consumption has been denied that same tax treatment.

 

Exploring Alternatives 

If APR is denied, all is not lost, as it is possible that BPR would still apply to the growing of hay for commercial sale. However, that is not to say that the claim for APR should be abandoned, as the lack of APR on hay production may have a negative impact on claiming APR on other agricultural property, particularly the farmhouse.

 

The general advice would be, therefore, that if evidence can be produced of proper cultivation of the land for hay growing and the regular harvesting of a crop (and proper records should be kept to show this), a claim should be made for APR on hayfields regardless of who the end consumer is, and any challenge from HMRC should be robustly defended.