Rural Estates Newsletter February 2023 - Flipbook - Page 13
For example, the land might be transferred into a trust for the benefit of future
generations with APR or BPR being claimed in relation to the IHT on the chargeable
lifetime transfer going into the trust, and holdover relief for the CGT. Similarly, where the
land is already in trust but subject to a qualifying interest in possession (and so taxable
on the life tenant’s death) the life tenant might consider surrendering his or her life
interest in favour of discretionary trusts, claiming the same reliefs as above.
Such a transfer would remain vulnerable to a supplementary IHT charge within seven
years if the transferor dies within that period, as well as to a possible clawback of APR/
BPR (because the land no longer qualifies on the death). Steps can be taken to mitigate
this, however, and it should be noted that the value of the land for the purpose of
calculating any supplementary charge is that at the date of the transfer (so without the
potential value uplift which the solar farm brings). In addition, APR/BPR is allowed for the
purposes of calculating the value of the transfer when looking at cumulation in relation to
a series of transfers prior to death for IHT purposes.
While land held in a discretionary trust will be subject to ten-year anniversary IHT charges
at a maximum of 6 per cent, the tax can be paid in instalments over a ten-year period
and the higher income streams from the solar farm generally mean that trustees are in a
position to accumulate income to use for payment of the tax.
Solar farm development in-house
Although less common, we do sometimes see estates undertaking the development of
the solar farm themselves which may provide the opportunity to claim BPR in relation to
the solar business.
While the complexities of such a structure are beyond the scope of this article, an
example would be for the landowner to lease the land on which the solar farm will be
built to a partnership (LLP) for a peppercorn rent and take fixed drawings from that
partnership equivalent to the rental payments had the lease been granted on arm’s
length terms. The landowner brings the land to the partnership and the developer the
solar farm development expertise. The partnership develops the solar farm and holds
the contracts with the grid. There should then be an opportunity after at least two years
of ownership for the partnership interest to be transferred to the next generation, either
outright or in trust, and BPR claimed as and when a taxable event arises.
Conclusion
A solar farm development can have a significant impact on the IHT treatment of the
land and so this should be considered early on in the process. Detailed tax advice
may be required and new ownership structures put in place prior to signing the option
agreement with the solar developer or undertaking the development, so plenty of time
should be allowed for this and the cost included in the overall project budget.
Rural Estates Newsletter
February 2023
13