PIM4224 - Losses for IT: specific rules for agricultural expenses

Where the customer has made a loss in their rental business in a year of assessment and agricultural land forms part of their rental business, they may make a claim to have the agricultural part of the loss set against their general income. The agricultural part is the expenditure claimed in their business accounts on maintenance, repairs, insurance and management of the agricultural land. Interest payable is not an allowable agricultural expense for this purpose.

The customer can set the loss against their general income of either:

• the tax year in which the rental business loss was made, or
• the tax year following that in which the rental business loss was made.

For example, a loss for 2014-15 attributable to agricultural land can be set against either their general income for 2014-15 or their general income of 2015-16.

The amount of loss relief available is restricted to the smallest of the following three figures:

• the customer’s total general income for the year after deducting rental business losses brought forward (to the extent of the rental business income) and after deducting any sideways relief for the previous year’s loss (see above),
• the amount of the rental business loss made in the year,
• the expenditure on repairs, maintenance, insurance or management of the agricultural land (ITA07/S123).

The sideways relief does not include uncommercial agricultural expenses. The expenses must be deductible in computing the loss and uncommercial expenses will only be deductible up to the amount of the income from the agricultural property (PIM2220). Uncommercial losses arise where the terms of the letting are not based on those of the normal open market; for example, where the customer agreed to charge a relative a nominal rent or a rent below the going rate for a similar kind of lease.

Claims and time limits for sideways set off of agricultural loss

A customer must make a claim to obtain this sideways relief against their total income.

Claims must be made on or before the first anniversary of 31 January following the end of the year of assessment. For example, if the relief is for 2014-15 then the tax year ends on 5 April 2015 and claims must be made by 31 January 2017.

Allowable agricultural expenses & definitions

For relief to be available in respect of agricultural expenses, all that is required is that there is a rental business loss and there are allowable agricultural expenses. The loss may not necessarily arise from the agricultural land, for example if the income from the agricultural land exceeded the expenses relating to that land. The loss would then have arisen from other parts of the rental business but relief would still be available.

Allowable agricultural expenses are defined by ITA07/S123. The definition is in terms of the ‘maintenance, repairs, insurance or management’ of the agricultural estate.

‘Agricultural estate’ means land, including houses and other buildings which is managed as one estate, and which consists of or includes any agricultural land. ‘Agricultural land’ means land, houses or other buildings in the UK occupied wholly or mainly for the purposes of husbandry.

Where the estate includes non-agricultural land, expenses on parts not used for husbandry should be excluded.

The expenses have to be those which are deductible in the rental business computation in respect of the maintenance, repairs, insurance and management of the estate. So an adjustment has to be made for non-deductible expenses.

Interest is specifically excluded. Also, some allowable rental business expenses do not come within the four headings of maintenance, repairs, insurance and management and so cannot be relieved in this way. Examples would be rent or rates paid.