Registration of Leases of more than 7 years in length

Due to the proposed changes to Agricultural Property Relief announced in the Autumn Budget 2024, some farmers may be faced with a high Inheritance Tax liability in their estates. In response to these changes, some landlord farmers may be looking to offer longer farm business tenancies to tenants as a way of reducing their value of land for Inheritance Tax purposes. This may be advantageous for tenants as it offers them greater stability and encourages long-term planning and development. If you are a tenant farmer and are considering entering into a long-term lease it is important that you are aware of the obligation to register the lease at the Land Registry and also understand the mechanics of Land Transaction Tax.  It is also important for any Landlord considering this to understand the other legal obligations and implications of entering into such tenancies and be sure not to let ‘the tax tail wag the dog’.

Under the Land Registration Act 2002, it is compulsory that new leases with a term of more than seven years is registered at the Land Registry. The obligation to register a lease lies with the tenant and the application for registration must be made within two months of the date of the lease. If a lease is not registered, it could have serious consequences for the tenant. Registration is essential for a lease to be given its legal title of a ‘legal estate’. In the absence of registration, it may be viewed as an ‘equitable lease’, or a ‘legal periodic tenancy’, all of which are much weaker agreements from a legal perspective.  Therefore, any landlord or tenant will find it problematic to dispose of their interests in the property, given the insecure position. If the ownership of the landlord’s interest changes, the new owners may not be required to uphold the current unregistered leases. It is, therefore, essential that tenants register their leases as soon as possible after completion, as failure to do will not provide the same level of security as if it was registered.

It is important that tenants are aware that Land Transaction Tax (LTT) may be payable on the date of the grant of a lease. This depends on the length of the lease and its value. There are specific charging rules in LTT in relation to non-residential leases which result, on the grant of a lease, in both the rent payable and any consideration other than rent (commonly a premium) being charged to tax.

Tax chargeable in respect of consideration other than rent

The amounts paid as premium or other amounts paid as consideration other than rent for the grant or assignment of a lease are charged to LTT under the rules applicable to such consideration.

Tax chargeable in respect to rent

LTT is charged on the net present value (NPV) of the rent payable over the term of the lease. If VAT is payable on the rent, you will have to include the VAT when calculating the NPV. The amount of tax chargeable in respect of rent for a non-residential or mixed lease is calculated using a specific formula and advice ought to be obtained on this.

The Stamp Duty Land Tax regime in England is similar to the LTT regime in Wales but is not the same e.g. the thresholds and rates may differ. The deadline for submitting an LTT return and any payment is 30 days from the date of the transaction. Whereas the submission deadline for a SDLT return and payment is 14 days from the date of the transaction.

If you do require any further advice on this, please get in touch with Agri Advisor on 01558 650 381

By Ffion Thomas, Solicitor, based in our Pumsaint Office.

Original article published in the TFA Cymru newsletter to their members. www.tfa.org.uk.