As we slowly edge closer to the Scottish Government’s target of net zero by 2045, the question of how we will continue to power the country becomes more and more relevant, and renewable projects are pivotal.
Off the coast of Thorntons’ traditional heartland of Angus, the colossal blades of the Seagreen Wind Farm are turning. Further south, the Berwick Bank Wind Farm, hailed as one of the largest offshore opportunities in the world, has reached the development stage.
Developers with proposals for battery storage sites, or solar farms, or on shore turbines are popping up all over with the promise of high (and index linked) rental payments which far eclipse the yield for the site that agriculture could ever achieve. We are seeing many of our clients in key areas receiving offers from multiple developers with generous option fees and the promise of far more to come, if the site is developed.
Agreeing to one of these schemes is an important decision for any landowner. We are talking about agreements lasting decades which will have a huge impact on the generational plan for a farm or estate. Sometimes they are suitable, sometimes they are not. It is therefore important to take professional advice at an early stage to ensure that the proposals will suit your circumstances and can be tailored to suit your needs as much as possible.
One of the key aspects that most landowners don’t realise when looking at one of these deals is the huge impact they can have on their tax position. It is often the case, irrespective if it is a project by a developer, or something which the landowner has decided to arrange themselves.
Income tax is the obvious tax that will be impacted by a huge influx of revenue, however perhaps less obvious is the impact on Inheritance Tax.
For farms and estates, Agricultural Property Relief (APR) and Business Property Relief (BPR) are key elements of effective Inheritance Tax planning.
The rules applying to both of these reliefs are complicated, however in most cases, a site which features a renewable project will normally be taken out of agricultural use. This means that it will not benefit from APR, and the availability of BPR may also be at risk.
Even more catastrophic, if no thought has been given to the ownership structure, it may even prevent the whole business enterprise from being able to claim BPR. Needless to say, this could result in a tax bill on death in the region of tens, if not hundreds of thousands of pounds.
But things are not really that dire.
With some organisation and forward planning, we can look at the structure your business and what impact your proposed project may have.
It may be the case that we look at having title to the developed site required held by another entity (separate from the farming enterprise) such as a trust or a standalone company. In addition to assisting the Inheritance Tax position, this may make the distribution of funds easier for you depending on your long-term next generation and succession planning.
It may be the case (particularly with solar or wind farms) that an agreement where some level of agricultural use is able to be retained and potentially preserve APR as a result.
It may be the case that due to the nature of the other facets of your business that the income generated may not be enough to impact your business to the extent that BPR cannot be claimed.
The point is, there are lots of opportunities out there with lifechanging sums on offer, but any potential deal has to be tailored to the landowner’s circumstance as far as possible to mitigate the risk of any unintended consequences further down the line.
That is why it is important to have a conversation with your solicitor at the early stages. The sooner you are able to take advice based on your particular circumstance, the sooner that your professional advisers can get to work on maximising the opportunities for you.
Sometimes delaying can be costly.
For more information, or detailed advice in relation to renewable projects and Inheritance Tax, please contact Cameron on 01316246808.
