UK: Rural Update - Spring 2011

News in brief

  • The Chancellor's Budget on 23 March 2011 was in general positive for rural landowners. It included a decrease in fuel duty by 1p per litre, funded by an additional charge on oil producers, and assistance for owners of small businesses in the proposed merger of the income tax and National Insurance Contributions regimes, thus decreasing administration.
  • The Budget also increased the limit for gains attracting Entrepreneur's Relief from £5 million to £10 million, helping individuals wishing to sell their business. Importantly, the Coalition steered clear of any controversial changes to the inheritance tax or capital gains tax regimes.
  • The new rate of SDLT of 5% for residential properties valued at over £1,000,000 will also come into force from 6 April 2011 and promises to cause confusion where agents disagree about the split of values of rural properties which comprise part residential and part non-residential.

Be aware of Agricultural Workers' occupancies

It is often a feature of an Estate or rural business that its employees live in an Estate property. However, the treatment of agricultural workers is peculiar and may catch out the unwary. Considerable care must be taken when granting occupancies and accommodation to employees who are, or may become, predominately employed in agriculture. The inherent danger is that the occupation granted could become an 'assured agricultural occupancy', which confers considerable security of tenure on the employee. This, in turn, will severely limit the landlord's ability to remove the tenant from the let property. This security of tenure will subsist even if the employment is terminated.

The devil is to be found in the detail of the Housing Act 1988, which provides that an assured tenancy will no longer be an assured tenancy if the tenant fulfils the 'agricultural worker conditions'. These conditions include working 91 weeks in agriculture out of the preceding 104 weeks. Other conditions require that the dwellinghouse must have been in 'qualifying ownership' during the subsistence of the tenancy. In brief, this means that the employer must be either the owner of the dwellinghouse or someone who has made arrangements with the owner for it to be used to house agricultural workers.

The way to avoid this problem is to serve a notice (in prescribed form) on the tenants stating that the tenancy is to be an assured shorthold tenancy. The landlord will also need to satisfy the usual criteria to create an assured shorthold tenancy, but, importantly, the service of this prescribed notice will prevent the tenancy from becoming a protected agricultural tenancy.

It should also be noted that an employee's status may change over time. An employer should, therefore, keep a close eye on his employees to ensure that the work that they do has not shifted predominately towards agricultural work e.g. a gardener whose role evolves. Again, this will help to prevent unwittingly conferring a higher degree of security of tenure on the tenant.

Family Courts invade inherited wealth

Since the decision of the House of Lords in White v White in 2000, the Family Court's treatment of the inherited wealth of one party to a divorce has been a matter of significant debate. The end of 2010 brought a Court of Appeal decision in this area that will assist individuals and their advisers in considering the potential impact of divorce on inherited property.

On 27 October 2010, the Court of Appeal handed down judgment in the case of Robson v Robson. This case involved a 21 year marriage during which the parties had two children who were aged 17 and 20 at the time of the proceedings. The husband's assets, predominately inherited from his father, were valued at more than £22 million and were made up almost entirely of rural estates – the principle one in the Cotswolds and a smaller estate in Scotland. In contrast the wife had assets valued at less than £350,000. Both the husband and wife were found to have enjoyed the full fruits of the husband's inheritance to fund their lifestyle at the expense of protecting it for future generations. The Court of Appeal awarded the wife £7 million, which was made up of £3.5 million to purchase a suitable property and the balance, capitalised periodical payments. The husband was forced to sell a substantial part of his inherited estates in order to fund this settlement.

In reaching this decision the Court was heavily swayed by the husband's management of and apparent disregard for the future of the estate. As the couple had 'lived off the fruit of the land without properly husbanding it' the Court found it acceptable to award the wife a settlement out of the estates, given that during the marriage 'the parties had jointly elected to live off [the inherited assets] and, in effect, use them as a substitute for earned income'. It was held that since they had drawn heavily upon capital during the marriage, these same assets should not be ring-fenced for the purposes of the divorce. The husband's claim that the estates were being managed for future generations was rejected, in part, because he did not come up with a viable proposal to safeguard their future.

However, the Court was clear that the approach to inherited assets will not always be the same. Important considerations are the nature of the assets, the time of inheritance (it was suggested that an asset acquired by the previous generation might be considered differently from one which had been in the family several generations), the use made of the assets by the parties and the needs of the parties at the time of separation. The Court of Appeal confirmed that the nature and source of an asset may justify a departure from the principle of equality of division and the suggestion was that in cases where the inherited or pre-acquired assets have not been depleted for general living expenses and there were sufficient marital assets to meet the needs of each of the husband and wife on divorce, ring-fencing of inherited wealth may be justifiable. It would very much depend on the circumstances of each case.

This case demonstrates the inquisitorial nature of the Family Courts and makes it clear that no asset is off limits when it comes to a divorce settlement. However, the special character of inherited assets was recognised, even if it was not enough in the particular circumstances of this case to ensure their protection. The case highlights another benefit of an estate having in place a strategic plan for the future.

Retiring employees

As medical care and living standards have advanced, so our national life expectancy has increased. The corollary of this generally positive trend is that we will need to work for longer in order to fund our retirement.

This has been made easier by the Government's publication of draft regulations scrapping the current 'default retirement age'. This means that employers will no longer be able compulsorily to retire workers at age 65.

From 6 April 2011, an employer who wishes to continue to retire employees at a particular fixed age will have to ensure that retirement at that age can be justified in order to avoid a charge of age discrimination under the Equality Act 2010. Whether an age can be justified for a particular role will be a question of fact in every case. An employer will have to be able to show that the chosen age meets a real business need (i.e. there is a legitimate aim) and that it is proportionate to use that age as a means to meet that aim.

Most employers are likely to move away from the concept of a 'fixed retirement age' altogether (as it may in practice be very difficult to justify a particular retirement age for all but a small number of specialist roles, such as airline pilots). It would be good practice to institute ongoing 'workplace discussions' over employers' future plans and employees' aims and aspirations for the short, medium and long term (which may, of course, be influenced by when they want – and when they will be able to afford – to cease working).

What should you do, then, if you need to bring an employee's employment to an end after the law changes? Employers will still be able to appraise whether staff are performing their jobs effectively, and fairly dismiss those who are not. Review your performance and capability management processes across the workforce (to focus on older employees could in itself be age-discriminatory) to ensure that, if necessary, you can remove employees who are underperforming or who are struggling with the physical demands of a role. For employers who have become used to turning a blind eye to any performance issues as long-serving employees approach retirement, this is likely to require something of a cultural shift – a conversation about a departure on performance grounds may be very different in tone to current discussions about an impending 65th birthday. Agricultural employers should also think carefully about what property rights a housed employee may have on retirement.

The change formally takes effect from 1 October 2011. The current draft regulations permit up to 12 months' notice to be given (on or before 5 April 2011) to employees reaching their 65th birthday before 1 October, meaning that the employer's notice of retirement must expire no later than 5 April 2012 (although a request from the employee to retire later, under the existing procedure, could mean the actual date of retirement being postponed to before 30 September 2012). The law of unintended consequences may operate, therefore, to provoke a rash of compulsory retirement notices before 6 April, as employers (already keenly monitoring headcount) act now with a system they know, rather than take a risk with the nascent new approach.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Claire Harris
 
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