80% of tied cottage occupiers could face tax on empty bedrooms

3 February, 2016

Thank you to everybody who responded to my survey on tied housing.  I have now offered the following observations in response to the HMRC consultation’s suggestion that the tax and National Insurance treatment of tied housing as a benefit in kind should be based on its full rental value.

The suggestion that all employer provided accommodation should be taxed on the basis of its full market rental value could therefore have significant implications for [rural] occupiers, many of whom are likely to be at the lower end of the pay range.  This in turn is likely to lead to greater pay pressures on employers at a time when there is no sign of agricultural volatility decreasing and when those same employers are facing the additional costs of extended pension rights etc.
It is also worth highlighting the contrast with Local Housing Allowance (LHA) and Housing Benefit (HB) if the proposal to move to full rental value were to go ahead.  LHA and HB are both restricted according to the number of bedrooms the occupier is deemed to need and LHA is further restricted to the lower level of rent prevailing in the district.  80% of the respondents to my survey would find their entitlement restricted if they were LHA or HB claimants, yet would almost certainly find it impossible to move to alternative accommodation without changing their job.

The online survey was undertaken between Monday 4 January and Tuesday 2 February 2016 using SurveyMonkey. No attempt was made to define a particular population beyond occupiers of employer provided living accommodation generally, with attention drawn to the survey via social media (twitter, LinkedIn, charlescowap.wordpress.com) and direct approaches to contacts in the rural economy. I cannot claim that the survey is representative of a particular group, nor that the results should therefore be treated as compelling. It does however provide a persuasive insight into the housing arrangements for people employed in some sectors of the rural economy.

Key findings:

  • Number of respondents: 25, all of whom live in accommodation provided by employers
  • Twenty pay no rent for their accommodation (80%), while five pay some rent (20%). Nobody claimed to pay full market rent.
  • Size of accommodation ranged from one to six or more bedrooms, Table 1

Table One: Number of bedrooms

Number of bedrooms Number of dwellings
1 2
2 4
3 5
4 8
5 4
6 or more 2
Total 25

 

  • The twenty five dwellings were occupied by a total of 70 people, ranging from single occupiers to couples with one or more children.
  • One respondent worked in education. Most respondents (n=17) worked on rural estates and seven occupiers worked in agriculture. There were no respondents from the forestry, licensed trade, security, other estate or property management or finance and banking sectors.
  • Two respondents paid Income Tax or National Insurance on the value of their accommodation but the majority did not (n=19, 76%). One respondent did not wish to answer this question and a further three did not know.

The data were further analysed as to the suitability of the accommodation for the size of the family unit living there. This was done by reference to the qualifying bedroom criteria for Local Housing Allowance and Housing Benefit.

  • Of the 25 households, twenty would have had their entitlement to benefit restricted due to an excessive number of bedrooms. This would have affected 58 of the 70 people covered by the survey. Examples of those excluded included:
  • 10 out of 11 couples in the survey occupying property of two or more bedrooms;
  • Two couples with children over 16 occupying houses with more than four bedrooms;
  • Two couples with one child under 16 occupying houses with more than three bedrooms.

One respondent who had lived in employer provided accommodation offered the following observations in response to the survey:

“Having lived in service accommodation for many years I’d comment:

1 In accepting a position where I was required to live in service accommodation to meet my contractual obligations I had no choice in the location (edge of pig farm)type of housing, nearby education, or standard of maintenance and external environment

2 There is an implicit and unpaid expectation that there will be a significant and unpaid additional labour contribution – unlocking for out of hours lorries and loading/unloading, telephone, attending sick animals

3 Additional taxation of such housing as a benefit could break that relationship and would require an employer to pay more for out of hours service

4 We never thought of service accommodation as a benefit, but a liability, knowing that when job terminated we would have to move so saved and invested every penny to buy a flat first, then a house, for long term security” (Mr John Stones, former director Nuffield Farming Scholarships)

Implications

Questions 9 and 10 of the HMRC Consultation, Employer Provided Living Accommodation, Call for Evidence (January 2016) ask what proportion of employees provided with accommodation pay rent, how much rent do they pay, how is the value paid as rent calculated before going on to suggest that a move to market rental value would provide a simplification to the tax system.

The findings of this survey suggest that very few occupiers in the rural economy pay any rent at all, and that a move to full market rental value could have disproportionate effects on occupiers who have little or no choice over the size of the accommodation provided for them. A move to market rental value as the basis of taxable benefit is likely to lead to upward pressure on pay in order to compensate for the extra cost, and with this consequences for employer costs including increased National Insurance contributions.

 

 


Accommodation provided by employers: some taxing questions

5 January, 2016

The government is seeking evidence on the taxation of employer provided living accommodation.  An explanatory document has been issued and the deadline for responses is 3 February.  It is worth reading for its clear explanation and examples of just how complicated the taxation of employer provided living accommodation has become over the last forty years or so.  It can be found at this link: Government consultation on employer provided living accommodation.

One particular question of the 16 caught my attention.  It’s number 10, and it asks:

Do you agree that using market rental value would provide a simplification to the tax rules on provided living accommodation? How could such a system work and what would be the impacts on both employers and employees?

I wonder what the effect of this might be on rural employees who live in houses which might be considerably larger or more expensive than they would otherwise choose, or indeed than they may be able to afford?  I have devised a simple survey which will allow some data to be collated if we can gather enough responses.  Some of the questions ask how many people of different ages live in the accommodation.  This will allow comparison with the maximum size of accommodation that would be acceptable for Local Housing Allowance purposes.  Please complete the survey by the end of January and this will allow the responses to be collated in time for the government’s deadline.

This link: Accommodation Survey will take you to the survey.  Thank you for your help which could be most valuable in providing evidence for the government’s review.


Rural Business and Farm Tax Update

14 December, 2015

Rural Business and Farm Tax Update – Autumn Budget to Spring Statement

Web class Online, 15 Dec 2015

The Autumn Statement was delivered by Chancellor George Osborne on 3 December this year. This web class will be delivered two weeks after the Chancellor has published the government’s review of the economy, on Tuesday 15 December, 09.00 to 10.30 GMT

It provides an excellent opportunity to look forward to what we can expect in the 2015 Spring Budget, and to take stock of any important tax planning opportunities which should not be missed before the end of the tax year in April.  In recent years the Autumn Statement has become just as important as the Budget itself, sometimes containing far more important statements concerning taxation, tax rates and the general thrust of economic policy.

Follow this link for further details. Or go to this url:

http://www.rics.org/uk/training-events/e-learning/web-classes/rural-business-and-farm-tax-update—autumn-budget-to-spring-statement/online/

Learning outcomes

  • Evaluate the impact of the Autumn Statement on farm businesses and the business structures associated with them
  • Evaluate the impact of the Autumn Statement on rural estates and related enterprises
  • Apply the latest rates and rules for the assessment of Income Tax, Capital Gains Tax and Inheritance Tax
  • Advise on the wider economic and financial implications of current tax policy for rural estate and farm business management.

Who Should Attend

  • Valuers
  • Estate Managers
  • Rural and agricultural valuers
  • Farm business consultants
  • Anybody whose livelihood is affected by the workings of the UK tax system.

Web Class Pre-requisites

Some familiarity with Income Tax, Capital Gains Tax, Inheritance Tax and VAT will be helpful, as well as some of the other taxes which can affect land transactions eg SDLT.


Agriculture: Five Great Challenges

20 October, 2015

Jeremy Moody, Secretary and National Adviser to the Central Association of Agricultural Valuers, spoke at Harper Adams University on Thursday 15th October on ‘Agriculture: Five Great Challenges’.

Opening with the observation that necessity is the mother of invention Jeremy commented that farming only adapts when it has to do so.

Jeremy identified his five great challenges as:

  1. Volatility.  Farming’s response so far has been to spread unit costs by taking on more land.  Attempts have been made to spread risks as well, but farming risks are increasingly connected.  Cost leadership is the answer, but ‘costs are like daisies’ – you cut them down and they grow up again.  Some farmers have responded effectively by moving further down the supply chain, for example the potato grower who now supplies chips to take aways.
  2. Output/acre ~ value/acre: We are generally growing low value commodity crops and with this we are seeing an inexorable shift to domination by combinable crops, wheat in particular.  The number of potato growers is predicted to drop from 2,000 to 1,000 over 10 years.  On the other hand, high value output enterprises are starting to appear.  For example vineyards in the south of England, and orchards.
  3. Resources: capital has been readily available at very modest cost, but the rising challenge will be the repayment of the capital itself rather than the servicing charges.  There are 60,000 farms which keep only one person in work.  Employed labour is concentrated in the pig, poultry, horticulture and dairy sectors and many of these employees come from abroad.  There are gaps in the age structure of farmers and it will be a continuing challenge to recruit and retain skilled labour.  Foreign workers are no longer confined to handwork in the fields but are steadily moving up the value chain – without its input we would not be able to sustain much of the higher value cropping leaving farmers with little choice but to revert to monocultural wheat.  Soil health and the resilience of natural capital is also a key part of the resource challenge.  We need to be able to put the right values on the health of soil.  This also draws in the value of water, and abstraction rights for irrigation in particular.
  4. Science and productivity: There has not been much growth in productivity since the 1980’s yet we know that precision farming can increase yields.  There needs to be spare capacity in management in order to make time to consider the possibilities and implement new approaches.  Our increasing reliance on data raises questions about its ownership, for example at the end of tenancies, from one farmer to another, from contractor to farmer.  Actually making effective use of all the data and technology now at the farmer’s disposal is also a large part of this challenge.  Modern machines have enormous technical capacity, but in practice little of what is available might actually be used.
  5. Progression: Flexibility must be the watchword in considering progression.  New entrants need not be young.  Sideways entrants from other sectors can bring just as much and more.  The wonderful smallholding opportunity for the 25 year old can be prison for the same 40 year old.  The industry is dominated by family businesses, 90% of farm employers and 30% can trace their farming origins to before 1900.  Increasingly we may see 90 year olds leaving farms to 70 year olds.

We cannot be the world’s cheapest producers, it is therefore essential that we focus on high input and high output farming with a long term view to ensuring the health of the basic resources on which farming and much else depends.

What do you think of Jeremy’s Five Challenges for Farming?  Here’s the video if you would like to see more:

Source: Agriculture: Five Great Challenges by Jeremy Moody

This video was filmed at Harper Adams University on 15 October 2015 in front of a live audience of students and staff in the Weston Lecture Theatre


Concise Rural Taxation 2015 now available

18 October, 2015

This year’s edition of Concise Rural Taxation is now available.  See the tab for further details of this year’s content, how to order and price (held at the same level as last year).


How to pass the Agriculture Competency of the RICS Rural APC

23 September, 2015

All candidates for the RICS (Royal Institution of Chartered Surveyors) Rural Assessment of Professional Competency (APC) must satisfy the examiners that they have a sound agricultural knowledge.  Three levels are specified and all candidates must achieve at least Level Two while some will opt for the higher Level Three.

What do we know about these requirements?  The RICS guide tells us that at Level Two we must demonstrate application of the principles and systems of practical farming methods.  This might involve questions on crop rotations, cultivations, general husbandry and marketing.  Animal welfare and record keeping can also be questioned, as well as the wide body of regulations which affect farming in one way or another.  Candidates are expected to know how to prepare detailed farm finance plans and budgets.

At the higher Level Three candidates are expected to have provided professional farm management advice (the provision of reasoned advice to stakeholders on the management and practical application of appropriate methods and requirements of farming, according to the guide).

Alongside all this, you are also expected to know about the utilization and cost of farm buildings.

Quite a tall order, but nevertheless essential knowledge for a rural surveyor who wishes to work for farmers and landowners while maintaining credibility with the client.

This is a professional examination and there is no substitute for direct experience and, just as important, intelligent engagement with the farming industry.  Regular reading of the trade press can help to imbue current market information and trends.

But even the best informed of candidates can struggle under examination conditions.  With a view to this we have developed a new web class with RICS Training, an Agriculture Competency Masterclass which will run on Friday 2 October at 12.00 for 90 minutes.  It won’t take you from zero to hero in that time, but it will help you to prepare soundly for the professional interview.  If any participants would like me to email me a copy of their agriculture submission at Levels 1, 2 and 3 if available I will happily consider them for anonymous inclusion in the class so you will get the benefit of direct feedback while adding to the value of the class for all participants.

The class costs no more than £30, less if you or your firm are a subscriber and details and bookings can be arranged here: RICS Agricultural Competency Masterclass


Disinherited? Don’t lose heart. Disinheriting? Take care …

28 July, 2015

‘Woman rejected by mother in will wins £164,000 inheritance’ according to the BBC’s headline.  Melita Jackson died on 29 June 2004 leaving her net estate of £486,000 to a selection of charities.  Melita had had little if anything to do with these charities during her lifetime.  Sadly Melita had fallen out with her only child, Heather Ilott.  The pair became estranged when Heather was 17 or 18 years old because Heather ran away with a man who was to become her husband and father of her five children.

Heather’s claim against the estate of her late mother has  reached its latest decision from the Court of Appeal having been up and down from County Court to High Court and back up again to the Court of Appeal (Ilott v Mitson CA [2015] EWCA Civ 797).  Mrs Ilott’s latest appeal was that an award against her mother’s estate of £50,000 was insufficient for her maintenance and the award should be increased.  The Court of Appeal has set aside the award and substituted its own award of £143,000 plus up to a further £20,000.  Why and how? Read the rest of this entry »


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