Patsy McGlone 29th September 2009

NI Assembly Passes SDLP Amended Motion on Conacre
 

On 28th September the NI Assembly unanimously passed an SDLP amended motion on Conacre and Inheritance Tax liabilities.

Speech by Patsy McGlone, MLA, in the NI Assembly

5.15 pm

Mr McGlone: "I beg to move the following amendment: At end insert

“; and calls on the Minister of Finance and Personnel and the Minister of Agriculture and Rural Development to engage with Revenue and Customs to find a suitable solution.”

Go raibh maith agat, a LeasCheann Comhairle. I listened very intently to what Mr Paisley proposed, and I heard what he had to say.

In its amendment, the SDLP asks that the Minister of Finance and Personnel and the Minister of Agriculture and Rural Development engage with Revenue and Customs to find a suitable solution to the problem. Indeed, I note from responses to questions for written answer on 5 May and 19 May 2009 that both Departments were actively engaged with Revenue and Customs on the matter. Indeed, the then Minister of Finance and Personnel stated on 19 May 2009:

“I have written to the Chief Secretary to the Treasury strongly urging her to consider amending the tax treatment of land”.

From the start, I must state that I have no particular expertise in matters either legal or accounting. However, I do know that decision in the case is wrong. I also know that it is causing difficulty, hurt and harm, as well as concern for the future of agriculture and farming here.

As Members will know, conacre is a specifically Irish tradition, with those living in rural areas letting small parcels of land for a single crop. In its original form, landowners allocated each conacre tenant a strip of land, to which the tenant was given access to plant and cultivate a crop. However, the tenant did not own the crop until he had paid for it in money, through labour or by a share of the crop. In its modern form, it has become part and parcel of a business, and the business of small farming in particular, and it is absolutely ridiculous that it should ever be regarded as separate “investment activity”. Conacre, being temporary by its very nature, earns relatively low returns, and is essentially a way of maintaining land for a farming family that has no particular plans in any given season.

As Members will have read, the McClean case involved 33 acres of agricultural land, parts of which were zoned, and, therefore, the anticipated market realisable value for development purposes was deemed to be £5·8 million, yet the agricultural value was only £165,000. Mrs McClean had inherited the land from her husband in 1983 and, since that time, had let it out to local farmers whose cattle grazed the land from 1 April to 1 November. From 1995, the owner’s son-in-law Mr Mitchell organised the letting of the land, as the owner did not have legal capacity to do so. The arrangements were agreed orally and confirmed in writing, and the price was agreed by acre, which is the basis of conacre.

However, as we now know, the special commissioners determined the difference between investment and business, and their conclusion, which the Court of Appeal upheld, was that the letting of those lands constituted a business that consisted wholly or mainly of the holding of investment, and, as such, under the Inheritance Tax Act 1984, it did not attract business property relief.

Agricultural property relief (APR) is available on lands that have been used in agriculture for two years by the person to whom the land was transferred. APR is limited to the agricultural values of those lands, and lands held in conacre were naturally enough entitled to APR, a fact that Revenue and Customs accepted. Furthermore, until recently, Revenue and Customs allowed business property relief on the additional development value, or “hope value”, of such lands. Moreover, for income tax purposes, those who grant conacre licences will be allowed business property relief if they are deemed to be conducting a business.

Without delving too deeply into it, the issues in the McClean case were concerned with whether a business was being carried out, whether that business was being carried out by Mitchell or McClean, and whether that business consisted wholly or mainly of holding investments. The special commissioners decided at the time when Mrs McClean died, and in the two years preceding that time, that she was the owner of a business but, because it consisted wholly or mainly of holding investment, that it was not a relevant business property.

However, there are many instances, particularly when area planning has been used to create newly defined towns, villages or dispersed rural communities, in which people living outside zoned land may have a farm of which part lies outside the development zone and part lies inside.

I can think of many in my immediate council area. Those people do not intend to pass the land on for development purposes: they have a working farm and a viable business. This case will have major implications for those people, and it has caused a huge scare in rural areas.

The development issue in zones where the land is let in conacre, or agistment, rather than farmed directly will cause problems, specifically for land zoned in those development areas where the development value of the land, albeit reduced at present, would significantly outstrip the agricultural value.

Around 30%, or 300,000 hectares, of Northern Ireland’s total farmland is let in conacre. There is no calculation as to how much of that could, potentially, fall within the development zones, but in those instances where only agricultural property relief applies, the inheritance tax of up to 40% would be applied on the development value of the land. It is incredible that the people who will inherit such property — people who are getting it tight in farming at the moment — will have to pay 40% inheritance tax on the value of land at its deemed zone valuation. It would put them out of business. They would inherit a huge debt rather than a workable farming business. They would be left to sort out that liability as a result of the lack of recognition of the special arrangements for farmers in Northern Ireland. It is a major issue and a source of grave concern.

The inheritance tax liability in the McClean case is estimated at £2·4 million. I was reared on a small farm of 22 acres; my father was a part-time farmer who also owned a garage. When I think of a few of those 22 acres and the liability that the rest of us would have been left with when my father, God rest him, passed on, I find it incredible. It is incredible for the small-farming community and the generations who may inherit and who may wish to farm — instead of being able to farm, they would be left with a huge tax liability round their necks. The situation is impossible.

The situation might seem reasonable to some civil servants and revenue commissioners — and even to some town planners, although not if they come from a farming background. Under the review of public administration, the situation could cause tensions between the new councils and the landowners whose land would be zoned under the area-plan process that we hear about at the moment, which involves the modernisation of planning and the plans afoot for good councils to deem and zone land to match local need. It would be a big problem in those circumstances. People would be contacting their solicitors immediately to ensure that their land was not being zoned. That would have a knock-on effect on affordable housing, housing development and the need to provide roofs over the heads of our younger generations.

The Minister of Agriculture and Rural Development is in the Chamber but the Minister of Finance and Personnel is not. I appreciate the fact that the Minister of Agriculture and Rural Development is from a rural constituency. However, the situation requires a joint approach. The Ministers must take into account the social, economic and farming circumstances of the community, and the Minister of Finance and Personnel must deal with Revenue and Customs on the matter. The SDLP proposed its amendment to ensure that rural society, the legislation and the amendments that may be required are dealt with in a joined-up fashion to represent fully the people who are concerned about the situation.

Mr Paisley said that some people are saying that there may be a way round the situation, and that some farmers may throw in a bit extra for fertiliser or fencing and posts in their tax returns in the belief that they will manage all right. That is working on a presumption, and it may or may not work.

We need clarity on that. For that reason I propose the amendment, and trust that the Members opposite will accept it in the spirit in which it is meant. It is aimed at arriving at a successful outcome for the people we represent."

 

Question, That the amendment be made, put and agreed to.

Main Question, as amended, put and agreed to.

Resolved:

That this Assembly notes with extreme concern the possible extension of the focus on the “McClean conacre case” by HM Revenue and Customs and is deeply worried at the severe disruption which this could have on our family farming tradition in Northern Ireland; and calls on the Minister of Finance and Personnel and the Minister of Agriculture and Rural Development to engage with Revenue and Customs to find a suitable solution.

 

ENDS