The recent ruling by Revenue and Customs that land let by farmers will now be classified as an investment, rather than a farming activity has created alarm among local MLAs, one of whom, Tommy Gallagher (SDLP) claimed that the decision reached by special Commissioners was, 'a monumental misunderstanding'.
"The immediate implication", he suggested, " is that every acre let in conacre could be subject to inheritance tax at 40% whereas ordinary farming activities are zero-rated. This is a monumental misunderstanding of what conacre is all about, and it is vital that the Minister for Agriculture should intervene and nip this in the bud. Otherwise, we will see smallholdings being put on the market by banks".
"Mr Gallagher described conacre as a specifically Irish tradition of letting small parcels land for a single crop.
"It is part and parcel of the business of small farming in particular, and it is absolutely ridiculous that it should ever be regarded as a separate business activity. Conacre is temporary by its very nature as lettings are always limited to 11 months, it earns very low returns and is essentially a way of maintaining land for which a farming family has no plans in a particular season".
He insisted that the tradition could not be compared with the type of land leasing with which the Revenue and Customs people might be familiar in England.
"It cannot form any basis for a reclassification of land for tax purposes. This proposal could cause absolute havoc among farming families, and it needs to be killed off quickly".
He urged the Minister and the Assembly Agriculture Committee to make their voices heard loud and clear and, above all, quickly.
Experts in the field confirmed that the new ruling would mean that land let in conacre, which would normally be inherited tax-free, could be subject to 40 per cent inheritance tax when it passes to the next generation.
One expert explained that farmland attracted two tax reliefs that reduced its value to nil when it passed to the next generation. In that way, family farms did not have to be sold to pay the tax. He said that it was not the agricultural value of the land that was at stake, rather its potential development value.
"The value of some farms for inheritance tax purposes could go from nil to millions overnight. Put simply, before this ruling a farmer with two children who let his land in conacre could leave half the family farm to each child, free of tax and confident that the family farm would survive for another generation.
"Now, those two small children can expect to inherit 30 per cent each (ie 60 per cent), and HM Revenue and Customs taking the other 40 per cent".
The Ulster Farmers Union described the ruling as, 'very worrying'. Its spokesman, Joe McDonald said the decision had the potential to create a lot of confusion and distress.
"We will be looking at its (the ruling) implications and we will be doing our utmost to ensure it is overturned".
