Back in December, we wrote about farm diversification. With farming subsidies reduced and government policies constantly changing, many farm owners were looking for new ways to make their farm work for them. As lockdown measures are being lifted, there is an opportunity for farmers to take advantage of a much-needed boost in rural UK tourism.

According to VisitBritain, the UK’s domestic tourism industry generated £91.6bn in consumer spending last year. Around £25bn of this came from overnight stays and £67bn from day trips. Despite projections that this will fall by a quarter to £69bn in 2020, the industry has been given a huge boost with Boris Johnson urging Brits to take a ‘staycation’ in the UK this summer.

Whilst international holidays are back up and running with many countries not requiring UK visitors to quarantine for a period, there is still a lot of uncertainty around going abroad. UK holidays are looking much more attainable for the majority, with 90% of Britons stating that they would be looking for a holiday in the UK once lockdown was over (CabinBookers, 2020).

With more people opting for a ‘staycation’, there has been an increase in demand for holiday accommodation in the UK. Google trends and search demand has highlighted a growing opportunity for the UK holiday market. Cottage rentals, self-catering and related terms are predicted to hit their highest point in the last 12-month period.

Farm diversification has been a big topic of discussion amongst farmers across the country for the last few years. With this most recent boost to UK tourism, now more than ever is a great time to consider uses for non-productive land. Our main advice is not to do it alone! Where diversification brings lots of opportunities for extra income, there are also a lot of challenges. Like most things with business, tax and accounting, there is no simple way of doing things.

Deciding on your Diversification

Be clear on your plans – what, how and why:

– What you would like your farm to diversify into e.g. holiday lets

–How you are going to achieve that – in terms of logistics, finance, knowledge, and expertise

–Why do you want to diversify? What are the reasons behind your decision?

Holiday Rentals and Lettings

In this current market, holiday rentals and lettings are seeing a surge in demand. By converting unused buildings into accommodation to rent out, whether it is full time or for holiday lets – this can provide a great source of additional income.

Whilst there are potential inheritance tax issues to consider, you may no longer qualify for Agricultural Property Relief (APR) or Business Property Relief (BPR). These two tax relief policies help farming families minimise inheritance tax, and diversification can greatly affect that.

Key points for consideration:

1. If you rent out land or buildings that are not used for agricultural purposes, you will not qualify for APR
2. If the buildings you rent are not used for ‘trading’ purposes, then BPR does not apply
3. Rental properties and holiday lets are typically treated as investment assets rather than trading assets, and so won’t qualify for BPR.

If you do decide to rent out some of your buildings for accommodation purposes, you might find that letting them as furnished holiday lets could directly benefit your existing business and you won’t be required to set up a separate business.

Profits from furnished holiday lets (FHLs) are treated as earned income, so they can be used to contribute to your pensions. But holiday rent is taxable, and if it exceeds the VAT registration threshold, you’ll need to register for and start charging VAT. This would impact other farming activities if it is all one business.

Qualifying as a Furnished Holiday Let (FHL)

1. Your property must be in the UK or in the European Economic Area (EEA).
2. It must be suitably furnished, and guests must have use of the furniture.
3. The property must be let with a view to making a commercial profit.
4. It must be available as an FHL to the public for 210 days within the tax year, with at least 105 days occupancy during that 12-month period
5. Any periods of occupation which are classed as ‘longer-term occupation’ i.e. between 31 and 155 consecutive days; will not count towards the actual occupation period.

Your individual circumstances and the way you plan to diversify will affect all of these tax nuances, which is why it’s important to talk to your accountant first. At Brightshire, we have expertise in all types of farm diversification, and we can help you understand exactly which set up and structure is best for you.

To talk through your plans, call us today on 01270 335030 or get in touch here.