Lease to buy farmland?

Westernrock

With current tax relief on long term leases could there be a case/situation for lease to buy options to allow younger farmers to purchase land? Would this be benefit to both parties where an inflated lease agreement could be paid for 5-10 years followed by a reduced lump sum? Would this reduce tax for both and reduce total interest paid by purchaser? Obviously any contracts would need to be watertight and needs a willing seller who is happy to receive their money over a longer period but the reduced tax would be their incentive. Maybe I’m missing something obvious as to why it wouldn’t work but it was just something I thought of after seeing a few bits of land come up for sale. With the ageing population of farmers I would imagine it’s a trend that will continue locally here in the west.

893bet

It would be tax evasion if that was written into a contract.

What would stop the seller from deciding to pull out at the “sale” point after having the benefit of the inflated lease?

Do you think the revenue wouldn’t notice then from the stamp duty that the land is being sold at below market value?

kevthegaff

I thought about it 7 years ago when I was buying land off a lad I knew, he agreed to but then I just didnt bother as it could get messy.

Bass Reeves

893bet wrote: »

It would be tax evasion if that was written into a contract.

What would stop the seller from deciding to pull out at the “sale” point after having the benefit of the inflated lease?

Do you think the revenue wouldn’t notice then from the stamp duty that the land is being sold at below market value?

It wouldn't if set up as a lease with an option to buy at end of lease. However the buying price would have to be realistic and the leasing price as well.

An option to buy is different from a deposit, you are signing a contract to sell. The person with that option dose not have to buy.

There are taxation risks if values are not realistic. In the case of the lease if rental terms are too high it could put the whole tax rebate on the lease at risk. In the case of the option it could be construed as a gift with tax elements to that. But taking an option after a lease is not tax evasion by itself

Westernrock

893bet wrote: »

It would be tax evasion if that was written into a contract.

What would stop the seller from deciding to pull out at the “sale” point after having the benefit of the inflated lease?

Do you think the revenue wouldn’t notice then from the stamp duty that the land is being sold at below market value?

I didn’t see it like that but maybe your right, I thought it more like taking advantage of a tax incentive that legally exists. I don’t know if revenue would be that aware of a slight difference in stamp duty, say 30% decrease in sale price due to it being paid off in the lease period. Sure there would be that amount of variation in land from one side of the road to the other around here. As for seller pulling out that’s why I imagine a good solicitor and accountant drawing up a watertight agreement with set agreed opt out clauses would be necessary.

Westernrock

Maybe what bass is talking about is more realistic where an option is written in, that would allow the potential purchaser to put aside money for the future deposit and repayments and make improvements to the land knowing it will be to their benefit long term.

Dinzee Conlee

Westernrock wrote: »

Maybe what bass is talking about is more realistic where an option is written in, that would allow the potential purchaser to put aside money for the future deposit and repayments and make improvements to the land knowing it will be to their benefit long term.

I don't see what's in it for the seller - except risk?