Agriculture update

The role of horses in rural business is an issue that legal, tax and planning advisers come across regularly.

The Encyclopedia of Planning Law and Practice states that planning law has no regard to the nature of the creature but only to its function. Because of this, there are six different planning classifications that a horse can came under, determined by what the horse is being used for.

1. The working horse: kept and bred for use in farming land.

2. The racehorse: kept and bred not as livestock
for agricultural purposes but for sport.

3. The recreational horse: kept for the owner’s enjoyment.

4. The grazing horse. Grazing is an agricultural activity no matter what animal is doing it. Therefore, technically, if the horse is just grazing on the land then the activity is agricultural.

5. The residentially incidental horse. Keeping a horse in the curtilage of a dwelling-house may, though not an agricultural use, be incidental to enjoying a dwelling-house.

6. Horsemeat: bred for human consumption. This
is common in other European countries and clearly constitutes an agricultural use.

These definitions are of great help to lawyers in determining the relevant factors that need to be taken into consideration when looking at what type of tenancy/occupation agreement would be most suitable.

Advisers must also consider whether planning permission for change of use could be required to prevent a breach of planning regulations and
what tax consequences could there be, any rating implications, and the insurance needs that will have to be met.

Unnecessary complications

Getting the correct type of agreement in place regarding someone else keeping horses on your land is vital. Which agreement you choose can be fraught with unnecessary complications for the ill-informed. It is important that the landowner is given all the information from the incoming occupier, as follows:

1. Will the occupier have exclusive use of the property?

2. For what reason is the horse being kept?

3. Is the horse on the land for the purpose of a trade or business?

4. If there is a trade or business use, is it an agricultural one?

Agriculture is defined as including: “…horticulture, fruit growing, dairy farming, the breeding and keeping of livestock (including any creature for the production of food, wool, skins or fur, or for the purpose of its use in farming the land), the use of land as grazing land, meadow land, osier land, market gardens and nursery grounds, and the use of the land for woodlands where that use is ancillary to the farming of land for other agricultural purposes, and ‘agricultural’ shall
be construed accordingly.”

Planning

Depending on the use of the horse, it may mean that the land use classification changes. For example, the recreational horse that is kept on agricultural land may mean that the land use has changed to a recreational use, or it may result in a mixed-use classification of agricultural and recreational use. Land may still be taken to be in agricultural use for planning and tax classification purposes. However, the proportionality of the determining factors are not clear.

Could there be a breach of planning regulations in allowing the intended activity to go ahead? If so, there may be a need to indemnify the landowner against any enforcement activity this may attract from the local authority.

If change of use is required, is this something that you are willing to accept? The landowner may wish to place the onus for obtaining the requisite planning permission on the tenant. Provisions should be considered for compensation at the end of the term for the planning permission if it is granted.

Rating

In Hemens (VO) v Whitsbury Farm and Stud Ltd (1998) RA 277 HL it was confirmed that horses and ponies, other than those used for farming the land or reared for food, are not ‘livestock’ within the definition in section 1(3) of the Rating Act 1971 (now paragraph 8(5) of schedule 5 to the Local Government Finance Act 1988) and any buildings used to keep them do not fall in the definition of agricultural buildings (paragraphs 3–7 of schedule 5 of the Local and Government Finance Act 1988) and as such are rateable.

If land is used only for grazing, it can be construed as ‘pasture land’ and will qualify as exempt agricultural land. Although it should be noted that for the purposes of paragraph 2A (1) of schedule 6 of the Local Government Finance Act 1988, ‘agricultural land’ should equate to more than two hectares and not be land used exclusively for pasturage of horses or ponies.

For this reason, it is common that sheep are
also grazed on land in common with the horses to try to preserve the ‘agricultural’ status.

Tax

For the purposes of inheritance tax, in Wheatley’s Executors v CIR (SpC 149) (1998) STC (SCD)60, it was considered whether grazing horses qualify for agricultural property relief (APR).

It concluded that meadow land used for grazing horses failed to qualify for APR. The horses were used by their owner for leisure, so although grazing is an agricultural activity, it was held that the meadow was not “occupied for the purposes
of agriculture”.

Grazing land constitutes ‘pasture land’
under the provisions of section 115(2) of the Inheritance Tax Act 1984, but to qualify for APR, grazing horses would only fall in the provisions
of section 117 of the Act if they are connected
with agriculture.

The decision in Wheatley may be harsh, but it reinforces the need for landowners to obtain clear advice before they enter into any agreements with third parties over the use of their land.

Insurance

All tenancy agreements as a matter of course should provide for insurance to be obtained. If
the occupier is intending to run a livery yard or other business, additional consideration needs
to be taken in relation to what type of insurance must be obtained, especially in relation to third parties and visitors to the property.

Also, additional covenants from the tenant ought to be included to ensure that they are entering into an agreed format of livery
agreement with their customers.

Although the law relating to horses can be complex, a methodical approach means that appropriate safeguards can be put in place to ensure that there are no nasty surprises for
the landowner later on.

Helen Gough is a solicitor at Lodders Solicitors