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HMRC internal manual

Business Income Manual

Farming: farmhouse rent

S34 Income Tax (Trading and Other Income) Act 2005, S54 Corporation Tax Act 2009

Farmhouse rents pose particular problems in arriving at a private use adjustment because the rent charged is often charged for the whole of the farm without a separate amount being attributable to the farmhouse itself.

Farmers are chargeable to tax as occupiers of farm land (excluding residential premises) and it is only the rent of the farm land which can properly be deducted as an expense wholly and exclusively incurred for the purposes of the farming trade. The fact that both the farmhouse and the farm land form the subject of a single lease cannot make the farmhouse part of the farm land. As the rent paid covers both the farmhouse and farmland, it is necessary to apportion the total to arrive at the rent appropriate to each.

The proportion of the rent which relates to the farmhouse will depend on the facts of the case concerned. The taxpayer may argue that the part of the rent relating to the farmhouse is represented by the difference between value of land without a house and the value of land with a house. However, that difference is not of direct relevance since you are dealing with land with a house. On the other hand, rents commanded in the open market by similar properties, which are not farmhouses, may well give a figure which is too high, since the fact is that the farmhouse is a farmhouse with the associated inconvenience of being used for the farming business. But these two views will, at least, serve to show the range within which a reasonable figure would be expected to lie.

In the past adjustments were often based on the gross annual value and you may still see them in some cases. These values are unlikely to give a realistic figure since gross annual values have not been adjusted for many years. You should therefore seek to produce an adjustment which is realistic in amount and fair to both sides.

In cases of difficulty the District Valuer will be able to assist you in determining where the correct answer lies. The principles to apply when using his services are set out in BIM51560 - BIM51615.

The next step is to establish the proportion of the rent relating to the farmhouse which is to be allowed because it represents business use. This is, of course, a question of fact to be decided by agreement or by the Tribunal in the event of disagreement.