A determined farmer who for years haemorrhaged money in his fight to make a go of his family holding has scored an important victory after a tribunal permitted him to write off his heavy losses against income from non-farming sources for tax purposes.
The man had inherited the 465-acre farm from his father and was one of the first to recognise that intense pressure on milk prices would make dairy farming unviable and to switch to arable. The farm had been covered by grass for at least 30 years and the shift involved much investment and years of soil improvement measures.
He claimed ‘sideways relief’ against his losses in a single tax year, seeking to set them off against his income from renting out cottages and farm buildings. However, HM Revenue and Customs (HMRC) took the view that his claim was ruled out by Section 67 of the Income Tax Act 2007, which precludes such relief where farming losses have been incurred for more than five years.
In upholding the man’s challenge, the First-tier Tribunal noted that he was anything but a ‘hobby farmer’ intent on setting off farming losses against vast profits made in the city or substantial investment income. He was ‘uniquely qualified’ to tailor his farming plans to the particular demands of his holding.
As a ‘competent’ farmer, he had anticipated that he would in due course stem the tide of losses and make profits in the future. The farm was capable of generating profits in his hands and he could not be described as an ‘everlasting loss-maker’. He had not expected to break into profit until after the relevant tax year and was thus entitled to sideways relief by virtue of Section 68(3) of the Act.