David McClarty (UUP)

The Business Committee has agreed to allow up to one hour and 30 minutes for the debate. The proposer of the motion will have 10 minutes in which to propose and 10 minutes in which to make a winding-up speech. All other Members who are called to speak will have five minutes. One amendment has been selected and published on the Marshalled List. The proposer of the amendment will have 10 minutes in which to propose and five minutes in which to make a winding-up speech. All other Members who are called to speak will have five minutes.

Ian Paisley Jnr (DUP)

I beg to move

That this Assembly notes with extreme concern the possible extension of the focus on the “McClean conacre case” by HM Revenue and Customs and is deeply worried at the severe disruption which this could have on our family farming tradition in Northern Ireland.

I say at the outset of the debate that I am happy to accept the amendment standing in the names of Mr McGlone, Mr Burns and Mr Gallagher on behalf of my party because it adds to the substantive motion. I hope that that will help the flow of the debate.

I have no doubt that this issue affects every Member who represents a rural community. Its impact should not be understated: about one third of the land in Northern Ireland is rented out in conacre. It has been accepted historically by HM Revenue and Customs (HMRC) that agricultural land that is rented to other farmers in conacre is part of normal agricultural practice. That is the case with almost every farm in Northern Ireland either renting in, or renting out, land in conacre. However, that land, quite properly, was subject to a business tax relief. As has been identified in the motion, the McClean case is a clear indication that the Government intend to move away — and, indeed, have moved away — from that justified tax relief.

I will dwell for a moment on the McClean case because it sets a heavy cabinet is the name given to the group of senior members from..." class="glossary">shadow over the entire farming and rural community of Northern Ireland. The McClean decision found that the business of letting land in conacre — or, indeed, letting it for livestock — was a business that consisted wholly or mainly of the making of investments and, therefore, that business property relief was not available on such land, and inheritance tax was payable on the excess development value of the land at the rate of 40%. The McClean decision means that those inheriting agricultural land, which has development or hope potential, let in conacre at the time of the owner’s death must pay inheritance tax at the rate of 40% on the development or hope value of the land. The impact of that should be obvious. I am sure that Members have been lobbied about the issue and have recognised its consequences.

There are a couple of case studies from my constituency that set the scene appropriately. Let us take the example of the estate of an elderly farmer on the north coast of Northern Ireland. The deceased was an elderly farmer who let his land in conacre on his retirement from full-time farming. On his death, his smallholding of 36 acres of farmland was found to have an agricultural value of approximately £450,000 and a development value of, potentially, £370,000. His farmhouse was also found to have a value of about £235,000. My constituent, Mr McIntyre, had always hoped that his land would pass on to his children, and, indeed, his grandchildren had expressed an interest in taking on the farm. However, HM Revenue and Customs has found that the family has to pay 40% inheritance tax on the value of the farmhouse and the potential development value of the 36 acres of farmland. The impact of that finding is that the family farm has to be sold to pay a tax bill; the land is not farmed and will not be farmed by the next generation; and the entire infrastructure and livelihood of that family has been changed desperately and decidedly for the worse of the community.

This is an obnoxious stealth tax, and I do not know why it was introduced. The revenue potential for the Government is slim, because, as Members heard in an earlier debate today, the liquidity in the Province for people to buy vast portions of land is so low that the Government will not get or maintain the tax value that they think there is in the hope value of that land. However, they are forcing people to sell their land in order to pay horrendous tax bills, which should not be the case.

The effect of the decision in the McClean case means that those who inherit farmland that has a significant development potential will, inevitably, have to sell the land to pay the inheritance tax on the development opportunity, even if they have no desire to pursue that development opportunity. Furthermore, if the development opportunity is never pursued, they will have to pay a huge tax bill on the development value. That has thrown many farms across Northern Ireland into disarray, and it is especially pertinent since, as Members know, our farm owners are in the higher echelons of the age brackets. We know that those people have tried to involve themselves in good financial tax planning, and the inheritance tax throws into disarray all tax-planning arrangements and any desire that they may have in their old age of passing on their farm to their sons, grandsons or granddaughters and allowing them to pursue the livelihood that they have enjoyed. That is wrong.

It has been publicised widely that by taking a greater role in the management of agricultural land, such as sowing fertiliser, fixing fences and maintaining the land, the owner will avail him or herself of the application of the business property relief to the land, as it applied in the past. I warn the House that that is not a certainty.

I am aware of another case in my constituency of North Antrim, which I will refer to as case study 2. In that case, a lady farmer who inherited 70 acres of a farm upon her father’s death, and having worked the land with her father from an early age, had, in her later years, let out the farm in conacre to a number of neighbouring farmers. The lady took an active interest in the animals, including sheep and speciality cattle, which were grazed on her land, and the speciality cattle were wintered in farm sheds close to the farmhouse. The lady played a significant role in caring for those animals. Upon her death, Her Majesty’s Revenue and Customs has been unwilling to accept that agricultural property relief should be available for the value of the house, and the case is being brought before the special commissioner’s appeal hearing. It is a running case.

The idea that there is a way round it and that so long as a farmer keeps some active interest in the farmland by maintaining the odd fence, for instance, he or she will be able to get past Her Majesty’s Revenue and Customs is wrong. In fact, HM Revenue and Customs recently issued a new inheritance tax manual, which contains a new paragraph relating to agricultural property relief. It sounds the death knell for conacre rights in Northern Ireland. It states:

“The availability of Agricultural Relief is a question of fact and degree to be decided upon the particular facts of each case.”

In other words, HM Revenue and Customs will take each set of circumstances case by case — through the courts and through special commissioners if necessary — to see how much money they can squeeze out of the farming community at a time when it is least able to pay.

It is right and proper that the House has an interest in the issue and that we lay down a marker to the Government, to HM Revenue and Customs and to the Prime Minister. I am delighted that the First Minister has made representations to the Prime Minister, and that the Minister of Agriculture and Rural Development and the Minister of Finance and Personnel and others have made representations to the Treasury. However, we must speak with clarion certainty that the House will reject the tax, because it will devastate farming and tax planning for the farming community, and it will prevent future farming generations being able to inherit, plough, sow and farm the land in the way that their fathers and forefathers did. The House should take an active interest in the issue and ensure that HM Revenue and Customs hears its voice loud and clear.

Patsy McGlone (Social Democratic and Labour Party)

I beg to move the following amendment: At end insert

“; and calls on the Minister of Finance and Personnel and the Minister of Agriculture and Rural Development to engage with Revenue and Customs to find a suitable solution.”

Go raibh maith agat, a LeasCheann Comhairle. I listened very intently to what Mr Paisley proposed, and I heard what he had to say.

In its amendment, the SDLP asks that the Minister of Finance and Personnel and the Minister of Agriculture and Rural Development engage with Revenue and Customs to find a suitable solution to the problem. Indeed, I note from responses to questions for written answer on 5 May and 19 May 2009 that both Departments were actively engaged with Revenue and Customs on the matter. Indeed, the then Minister of Finance and Personnel stated on 19 May 2009:

“I have written to the Chief Secretary to the Treasury strongly urging her to consider amending the tax treatment of land”.

From the start, I must state that I have no particular expertise in matters either legal or accounting. However, I do know that decision in the case is wrong. I also know that it is causing difficulty, hurt and harm, as well as concern for the future of agriculture and farming here.

As Members will know, conacre is a specifically Irish tradition, with those living in rural areas letting small parcels of land for a single crop. In its original form, landowners allocated each conacre tenant a strip of land, to which the tenant was given access to plant and cultivate a crop. However, the tenant did not own the crop until he had paid for it in money, through labour or by a share of the crop. In its modern form, it has become part and parcel of a business, and the business of small farming in particular, and it is absolutely ridiculous that it should ever be regarded as separate “investment activity”. Conacre, being temporary by its very nature, earns relatively low returns, and is essentially a way of maintaining land for a farming family that has no particular plans in any given season.

As Members will have read, the McClean case involved 33 acres of agricultural land, parts of which were zoned, and, therefore, the anticipated market realisable value for development purposes was deemed to be £5·8 million, yet the agricultural value was only £165,000. Mrs McClean had inherited the land from her husband in 1983 and, since that time, had let it out to local farmers whose cattle grazed the land from 1 April to 1 November. From 1995, the owner’s son-in-law Mr Mitchell organised the letting of the land, as the owner did not have legal capacity to do so. The arrangements were agreed orally and confirmed in writing, and the price was agreed by acre, which is the basis of conacre.

However, as we now know, the special commissioners determined the difference between investment and business, and their conclusion, which the Court of Appeal upheld, was that the letting of those lands constituted a business that consisted wholly or mainly of the holding of investment, and, as such, under the Inheritance Tax Act 1984, it did not attract business property relief.

Agricultural property relief (APR) is available on lands that have been used in agriculture for two years by the person to whom the land was transferred. APR is limited to the agricultural values of those lands, and lands held in conacre were naturally enough entitled to APR, a fact that Revenue and Customs accepted. Furthermore, until recently, Revenue and Customs allowed business property relief on the additional development value, or “hope value”, of such lands. Moreover, for income tax purposes, those who grant conacre licences will be allowed business property relief if they are deemed to be conducting a business.

Without delving too deeply into it, the issues in the McClean case were concerned with whether a business was being carried out, whether that business was being carried out by Mitchell or McClean, and whether that business consisted wholly or mainly of holding investments. The special commissioners decided at the time when Mrs McClean died, and in the two years preceding that time, that she was the owner of a business but, because it consisted wholly or mainly of holding investment, that it was not a relevant business property.

However, there are many instances, particularly when area planning has been used to create newly defined towns, villages or dispersed rural communities, in which people living outside zoned land may have a farm of which part lies outside the development zone and part lies inside.

I can think of many in my immediate council area. Those people do not intend to pass the land on for development purposes: they have a working farm and a viable business. This case will have major implications for those people, and it has caused a huge scare in rural areas.

The development issue in zones where the land is let in conacre, or agistment, rather than farmed directly will cause problems, specifically for land zoned in those development areas where the development value of the land, albeit reduced at present, would significantly outstrip the agricultural value.

Around 30%, or 300,000 hectares, of Northern Ireland’s total farmland is let in conacre. There is no calculation as to how much of that could, potentially, fall within the development zones, but in those instances where only agricultural property relief applies, the inheritance tax of up to 40% would be applied on the development value of the land. It is incredible that the people who will inherit such property — people who are getting it tight in farming at the moment — will have to pay 40% inheritance tax on the value of land at its deemed zone valuation. It would put them out of business. They would inherit a huge debt rather than a workable farming business. They would be left to sort out that liability as a result of the lack of recognition of the special arrangements for farmers in Northern Ireland. It is a major issue and a source of grave concern.

The inheritance tax liability in the McClean case is estimated at £2·4 million. I was reared on a small farm of 22 acres; my father was a part-time farmer who also owned a garage. When I think of a few of those 22 acres and the liability that the rest of us would have been left with when my father, God rest him, passed on, I find it incredible. It is incredible for the small-farming community and the generations who may inherit and who may wish to farm — instead of being able to farm, they would be left with a huge tax liability round their necks. The situation is impossible.

The situation might seem reasonable to some civil servants and revenue commissioners — and even to some town planners, although not if they come from a farming background. Under the review of public administration, the situation could cause tensions between the new councils and the landowners whose land would be zoned under the area-plan process that we hear about at the moment, which involves the modernisation of planning and the plans afoot for good councils to deem and zone land to match local need. It would be a big problem in those circumstances. People would be contacting their solicitors immediately to ensure that their land was not being zoned. That would have a knock-on effect on affordable housing, housing development and the need to provide roofs over the heads of our younger generations.

The Minister of Agriculture and Rural Development is in the Chamber but the Minister of Finance and Personnel is not. I appreciate the fact that the Minister of Agriculture and Rural Development is from a rural constituency. However, the situation requires a joint approach. The Ministers must take into account the social, economic and farming circumstances of the community, and the Minister of Finance and Personnel must deal with Revenue and Customs on the matter. The SDLP proposed its amendment to ensure that rural society, the legislation and the amendments that may be required are dealt with in a joined-up fashion to represent fully the people who are concerned about the situation.

Mr Paisley said that some people are saying that there may be a way round the situation, and that some farmers may throw in a bit extra for fertiliser or fencing and posts in their tax returns in the belief that they will manage all right. That is working on a presumption, and it may or may not work.

We need clarity on that. For that reason I propose the amendment, and trust that the Members opposite will accept it in the spirit in which it is meant. It is aimed at arriving at a successful outcome for the people we represent.

Willie Clarke (Sinn Féin)

Go raibh maith agat, a LeasCheann Comhairle. I will begin by stating that Sinn Féin supports the motion and the amendment. The amendment calls for the Ministers to engage with Revenue and Customs to find a suitable solution. Although I have no difficulty with that, surely it would be the British Treasury that we would need to get clarification from, and it should be the Treasury that provides a solution. Perhaps the proposer of the motion will address that issue in his winding-up speech.

In nineteenth-century Ireland, conacre was the name given to the system whereby land was let not for a number of years but for a single season, usually one year. Land was let for the purposes of taking up a single crop of potatoes or corn, or for grazing. It was a form of subletting used by landowners and farmers to rent to those who had insufficient or no land of their own to secure the basic food supply needed for their families to survive.

Conacre refers to short-term land lettings, and is an 11-month land rental agreement that is unique to Ireland, and an important feature of Ireland’s farming scene. Landowners and farmers use conacre in various ways: farmers can increase the size of their farm by taking land as conacre, or increase their income by letting land as conacre.

In recent years the conacre rates have remained fairly stagnant, and the average income from grazing land is £100 per acre per annum, representing a fairly poor return. It is a rare commodity that landowners accept so little return on a valuable piece of ground, which demonstrates the important emotional and family ties that land holds for Irish owners.

I am very troubled about the potential impact the court ruling may have on the local farming community, with one third of land in the North of Ireland let as conacre. The court decision could result in a significant increase in the acreage of local farmland that is liable to 40% inheritance tax. Recently, the Minister of Finance and Personnel expressed his intention to continue to press the British Treasury for acknowledgement of the uniqueness of the issue for the North of Ireland, and the implications for our local agriculture industry. He also stressed that taxation is a reserved matter for the British Government to determine, and that he would be seeking substantive commitment on the issue.

As the Member who spoke previously already pointed out, the Minister of Agriculture and Rural Development is here. Will she tell us whether she will be attending that meeting along with the Minister of Finance and Personnel? It is a cross-departmental issue, and has to be dealt with in such a way.

In my opinion, the main issue is quite clearly the fact that taxation and public expenditure policy are set in London. I remember that one of the first debates that took place in the Assembly during this mandate was on the issue of transferring fiscal powers. That issue was brought to the Chamber by Sinn Féin, but it was not supported by the House. We believe that the Assembly, as the elected body for this part of the island, should at least have the ability to review taxation. The issue currently under debate illustrates the case for having fiscal powers transferred. We need as many powers as possible transferred to the Members of the House: that is what the electorate wants and deserves.

Ian Paisley Jnr (DUP)

Will the Member give way?

Willie Clarke (Sinn Féin)

I will.

Ian Paisley Jnr (DUP)

I am pleased that the Member is agreeing with the thrust of the debate. Does he not recognise that we would find ourselves in a reckless position if we had tax-raising powers at this point? The inference would be that we would therefore have to continue with a tax levy, even on farmland. We would actually be the instrument imposing that tax on the people, whereas at the moment we have the leverage to perhaps oppose and prevent it from going any further.

Willie Clarke (Sinn Féin)

I thank the Member for his intervention, but I do not agree with him. If fiscal powers were transferred to this House, we would review taxation in the round, including VAT, inheritance tax, and all other taxes. We should at least have the opportunity to look at that. This is one particular case of people attempting to bring an English model to an Irish problem, where it does not sit well. Mr McGlone mentioned that, and asked how someone in a different jurisdiction could get an understanding of conacre and its emotional aspect with respect to the community.

The issue is not about political point-scoring; we must look at the real decisions that affect local people, including farmers in rural communities.

As others said, Ireland has a distinctive historical conacre system that does not operate in any part of England, Scotland or Wales. We do not wish farms to be unduly affected by these developments. The effect of the ruling is that, on the death of the owner of the farmland, the development or hope value will become liable for inheritance tax at up to 40% and that empty property rate (EPR) relief will no longer apply to lands let in conacre.

The ruling shows no understanding of Irish rural life. The tradition of owning land passed from parents runs deep in the Irish psyche. If farms were lost to others outside the family, it would have major implications that could lead to the demise of rural communities. There are also emotional side effects, including mental-health issues and effects on the general well-being of people who lose land. The tradition of keeping land in one’s family may be destroyed —

David McClarty (UUP)

The Member must draw his remarks to a close.

Willie Clarke (Sinn Féin)

Small farmers will disappear to be replaced by large-scale farmers. Farming helps to shape our landscape, and that could be lost forever if the implications of the ruling are brought forward.

David McClarty (UUP)

I remind Members to address all their remarks through the Chair.

Danny Kennedy (UUP)

I welcome the motion, which was very well presented by Ian Paisley Jnr. The Ulster Unionist Party accepts the amendment. The motion is on a significant and important subject, and a number of months ago, my colleague Mr Elliott and I tabled a private Members’ motion on the matter.

Conacre is a major feature of agricultural letting practice that is unique to Northern Ireland and to the Republic of Ireland. Therefore, it is a special situation, and any changes in the rules governing it will have widespread implications for profitability across the farming industry.

The changes to the rules under which letting zoned land under conacre can be considered to constitute a business are deeply misguided. The use of conacre is nothing more than managing an asset that is no different in principle from managing personal finances in a building society account or, perhaps, an investment trust.

To deem the letting of land under conacre as a business also has a negative effect on Northern Ireland, which is the only part of the United Kingdom tax jurisdiction that uses conacre on a widespread basis. Any change in the attitude of HM Revenue and Customs to taxing the use of conacre on development land should take that potent fact into account. At the very least, that should lead to a postponement of the new ruling.

Thousands of acres of land that are let in conacre, which would normally be inherited tax-free, are now subject to an inheritance tax of up to 40% when they pass to the next generation. That will prompt massive numbers of farm landowners to sell up before the deadline, producing a glut of agricultural land in the market, driving down prices and reducing the asset value of many farms. It will also have a severe effect on rural Northern Ireland and will erode our agricultural base at a time when we should be cherishing and supporting the agricultural sector, not least because of security issues and a reduction of dependence on imported foods.

It is no more than a smash-and-grab raid by HM Revenue and Customs on the pockets of decent, hard-working families and people while public money is being squandered on dubious banking and corporate policies. It will directly affect Protestant and Catholic and other landowners and farmers throughout Northern Ireland, in a country where land ownership is highly sensitive and highly emotional.

Therefore, land inheritance is an important aspect of keeping rural communities together. The latest blow from HM Revenue and Customs has the capacity to break up rural communities and will help to destabilise rural society.

The Assembly is right to oppose that. I welcome the presence of the Minister of Agriculture and Rural Development in the Chamber. All parties should find common cause on the issue because it has drastic repercussions for the agricultural and landowning population of Northern Ireland. I support the amendment and the motion.

David Ford (Alliance)

My party colleagues and I will support the motion and the amendment. By way of introduction, I declare my interest — technically my wife’s interest — in a shared family farm, which is recorded in the Register of Members’ Interests.

Other Members have discussed the unique situation of conacre land in Ireland. According to aspects of HMRC guidance, a conacre arrangement is equivalent to a grazing licence in Great Britain. The HMRC website refers to land in such condition as being treated as eligible for agricultural property relief under inheritance tax. However, it does not spell out the full details and implications of that.

Mr Willie Clarke and Mr Kennedy, in particular, have discussed the nature in which land is held in this society. Nowhere in HMRC’s guidance is there any reference to that. It is not true to suggest that people’s ownership of family farms — which, in many cases, grandfathers and great-grandfathers sweated blood to purchase under land Acts of a century ago and to maintain as family holdings — is somehow equivalent to owning stocks and shares or investment property. Regardless of whether that satisfies section 105(3) of the Inheritance Tax Act 1984, it certainly does not fit the psyche of people in this society. That problem is simply not recognised in the way that HMRC treated that particular case and others, such as those highlighted by Mr Paisley Jnr when he proposed the motion.

On one hand, a problem exists that does not apply to every farm in Northern Ireland because it relates solely to business-property relief where there is development potential. On the other hand, as we heard from Mr Paisley Jnr, HMRC now decrees what size of a farmhouse is suitable for a particular size of farm. Apparently, if HMRC does not approve of the size of a house, it will regard it as being more than is appropriate for the farm, even though, in other cases, domestic dwellings are not liable to inheritance tax in certain circumstances. Therefore, there are real issues with the way in which the matter is being treated.

I remember going to a school open evening a few years ago with one of my children. The geography department’s display showed documentation that related to a teacher’s grandfather’s purchase of the family farm from the estate, which he still held, although he was clearly only farming it part time.

I have seen the same situation occur among my family and in-laws. People’s attachment to the land is such that, until now, they have not believed that HMRC could simply regard it as investment property. They cannot believe that they must face that realisation.

That means that the Assembly must learn two lessons. First, it must determine what can be done to draw that to HMRC’s attention. I am, perhaps, almost as sceptical as Mr Willie Clarke about the Assembly’s ability to get that changed soon. Secondly, the Assembly must make the implications clear to people. At present, those who have let land under conacre agreements for many years will have to consider a different way to manage it; perhaps by setting up some special kind of partnership or by passing it on to family. At present, many farms in Northern Ireland that are located in areas where there is development potential are at risk because of that ruling.

It is not credible to say that the Assembly will simply make representations to HMRC because that may well not be enough. The Court of Appeal’s judgement, sadly, was given by three judges from Northern Ireland who seem to have been overborne upon by representations from HMRC special commissioners, although, clearly, they were under fairly tight constraints.

However, their decision recognises that a spectrum of different circumstances applies in such cases. The message for many people, which Ian Paisley Jnr expressed reservations about, is that they should shift themselves and their property from one end of the spectrum to the other if they wish to maintain their inheritance. The problem that we face is that people will get nowhere if they continue as they are.

David McClarty (UUP)

I ask the Member to draw his remarks to a close.

David Ford (Alliance)

I hope the Department of Agriculture and Rural Development and the Department of Finance and Personnel will show us that they can work together. It is a pity that we only have one Minister in the Chamber this afternoon; I trust that she can report on behalf of both Departments when responding.

William Irwin (DUP)

I declare an interest as a landowner.

The importance of the McClean ruling in Northern Ireland is serious, given that approximately one third of all the land in the Province is rented as conacre. In my constituency, I can think of scores of families who have farms with significant land let out as conacre. Many of those families have contacted me to express their concerns about the McClean case and what it could potentially mean to them.

Although the main thrust of the McClean case is directly related to land with development potential, such as farmland on the development boundaries of towns and villages, there is much to be concerned about across Northern Ireland because we have scores of towns and villages that all have development zones to permit controlled growth.

In the Armagh area alone, a total of 180 hectares of land across a range of settlements was identified as suitable for new housing, as stated in the ‘Armagh Area Plan 2004’. Of that amount, around 85 hectares — approximately 210 acres — remain undeveloped. Although the current development value of land is much reduced compared with even a year ago, there remains a frightening potential for a huge tax bill for a family in a similar position to those in the McClean case.

The ‘Armagh Area Plan 2004’ identified in the region of 34 hectares of industrial zoned land in the local towns of Keady, Markethill and Tandragee. Only two hectares of that land has been used for industrial purposes and a further five hectares have been used for housing, which leaves 27 hectares. Therefore, I can clearly see why people with conacre land in industrial zones would be concerned by the ruling in the McClean case.

With such a large percentage of land here let as conacre, Northern Ireland should be treated as a unique entity and should be free from such unsympathetic treatment by HM Revenue and Customs. I recently heard of a case in which a constituent inherited from a family member a farm with a small portion of zoned land. The farm was valued for inheritance tax purposes at the height of the property boom about two-and-a-half years ago, which left the family with a bill of over £750,000. The family were forced to put the farm on the market as they were unable to raise the money to pay the tax bill. The highest offer on the farm at present is less than the tax bill, which has left the family with a millstone round their necks. That is an unfair situation that cannot be allowed to continue.

As I said, Northern Ireland is in a unique position due to the large amount of conacre land here. Any attempt to remove tax relief on that land will have far-reaching consequences for the future of the farming community of Northern Ireland.

I welcome the fact that the First Minister has raised the matter at the highest level at Westminster. It is vital that the Westminster Government realise the serious consequences of removing tax relief for conacre land in Northern Ireland. I support the motion.

Tom Elliott (UUP)

I thank the Members who tabled the motion and apologise to Mr Paisley Jnr for not being in the Chamber when he proposed the motion. Much of what I have heard in the debate has been factual information. I want to deal with some of the realities that may occur from the outworkings of the McClean case.

We have only to look at the changing farming practices in Northern Ireland over recent decades. More and more land is being leased by farmers, and there are fewer and fewer individual farm units, with other farmers leasing land from neighbouring farmers. As a result of this case, more and more landowners will start small farming practices in order to take that land out of conacre. That alone will have a significant effect by not leaving land available for the more extensive and intensive farmers who need it for their business.

On the other hand, some landowners do not have the facilities to farm that land feasibly. I am thinking about stocking, housing and handling facilities. In addition, they must have all the documentation that is required by the Department of Agriculture and Rural Development, the Department of the Environment and other Depart­ments. That will be a huge challenge for those landowners. Therefore, it is vital that we make every effort to get the Government to realise the significance of this for farmers, beyond the costs to those individual farmers who will be caught up in it.

There is also the difficulty of “hope land” — land that may be on the edge of a development zone and which Revenue and Customs may say has hope value because it may come into a development zone in 10, 15 or 20 years’ time. Revenue and Customs will put an additional value on that land. Under PPS 21, meanwhile, one dwelling is allowed per farm unit. Revenue and Customs could say, OK, you are allowed one dwelling on that farm, so we will take half an acre out of that and value it not at agricultural value but at development value. That immediately raises the stakes in that situation.

All those situations and cases must be identified and brought to the Treasury’s attention, otherwise, as my colleague Danny Kennedy said, we in this Province will all suffer the same fate, and it does not matter whether you are a Protestant, Catholic or whatever religion. I heard of one case of a man leaving 10 or 12 acres in his will to a local church. The land is in a development zone, and was left with the condition that the church is not allowed to sell it. The church is now left with a huge inheritance tax bill; it cannot sell the land and cannot raise the money. The tax bill is around £2 million, and it will bankrupt the church. It would have been far safer not getting the land. This business is causing huge difficulties and problems not only farmers but for the wider community.

George Savage (UUP)

I declare an interest as a farmer.

The Member was talking about the implications of this case. I noted the words of the Finance Minister in the previous debate about semblance and reality. If this goes through, the semblance and the reality will lie in putting small farms out of business. He also talked about fairness and impact — words that are very important in this context. There will be no small farming industry left here in Northern Ireland if this goes on.

There is an old saying in tax offices: if we do not get you when you are living, we will get your family when you are dead. Those are words that we thought we never would hear, but they are becoming a reality, and the Assembly has to take action.

Tom Elliott (UUP)

I thank the Member for his intervention; I agree with his points. I, too, of course, should have declared an interest, being a landowner and farmer.

The ruling will affect traditions and assets that have been in families for generations; we cannot allow that to happen. Otherwise, as Mr Savage said, we will destroy —

David McClarty (UUP)

I ask the Member to draw his remarks to a close.

Tom Elliott (UUP)

We will destroy the farming community in the Province, not only for this generation but for generations to come.

Jim Shannon (DUP)

I support the motion and congratulate the Members who proposed it. Moreover, I support the amendment, which keeps everything nice and neat.

In April 2008, a local special commissioners case was heard on the availability of business property relief on the development value of land set in conacre. That is where the problem began. It was decided that business property relief was not available because conacre letting was deemed an investment activity rather than a trading activity. The Court of Appeal recently decided to uphold that tax ruling. That could mean that all transfers of conacre land could be liable to the full rate of inheritance tax.

As other Members said, about one third of Northern Ireland farmland is let under the conacre system, which does not operate elsewhere in the UK. The ruling in the McClean conacre case is an attack on the rural community, and we cannot let it pass by today. The House of Lords refused to hear an appeal against the Northern Ireland Court of Appeal decision but supported the claim of Her Majesty’s Revenue and Customs that certain agricultural land in conacre should now be subject to inheritance tax. That cannot be the end of the push.

The fact bes at hit means at femmelie fairmin, es we knaw hit theday, i the province bes aa an enn. The wee femmelie fairm wul bae a thing o’ the pas’ an’ onie business fairmin wul bae fit tae pey hit’s wie. Thon issue wus brocht ap tae me bae a nummer o’ fairmers wha ir consairned – an they hae ivry richt tae bae — aboot thair richts tae pass a waarkin inheritance oan tae thair weans an’ thon bes a thing at bes definitely unner attack fae thon rulin’.

Forebye thon A hae hed screeds fae ither Members o’ the ‘Semmelie cumin oot wi’ the saime consairn an reservations adae wi’ the conacre rulin’.

In reality, family farming as we know it in the Province will come to an end if that continues. Small family farms will be a thing of the past and business farming only will be viable. The issue was brought to my attention by numerous farmers who are concerned — and they have every right to be — about their right to pass a viable inheritance on to their children. The ruling definitely puts that system under attack.

I have received correspondence from my colleagues in the Assembly who have expressed the same concern and reservations about the conacre ruling. Indeed, the previous Minister of Finance and Personnel, Nigel Dodds, discussed the implications of the legal judgement on the conacre tax issue with the then Chief Secretary to the Treasury, Yvette Cooper. He highlighted the significant effect that the recent court ruling will have on the agricultural community in Northern Ireland. I am assured that he took the opportunity to impress on Yvette Cooper the importance of the issue and to ask that she consider its repercussions fully.

Although taxation is a reserved matter, the Department of Finance and Personnel has been in touch with the Treasury in recent months to highlight the issue and its potential negative impact here. The work did not end with Nigel Dodds. I am aware that the current Minister of Finance and Personnel, Sammy Wilson, has continued to push the issue with the Chief Secretary to the Treasury, Liam Byrne, and has requested a meeting with him.

To put the scale of the problem in context, we must highlight the fact that Northern Ireland has a unique system in which one third of land is let out as conacre. That ensures that smaller farms can guarantee the longevity of their farm for generations to come. If we remove that ability, it is not an exaggeration to assume that most farmers, who already struggle to make a living due to EU restrictions, will certainly be unable to withstand full inheritance tax when passing the family business on to their children. Subsequently, family farming in Northern Ireland will be a thing of the past. That is our concern.

The Ulster Farmers’ Union has 12,500 members — and I declare an interest as a member — and its main mission is to promote and support a vibrant, sustainable rural economy where agriculture is secure and pivotal to its future. For that reason, we must work closely with that body to ensure that farming can continue. That is why the Assembly must stand with our farmers tonight and ask for action that will avert this devastating effect. If the situation had affected Shorts, the Assembly would have, rightly, taken a big decision to make changes. However, this affects farming, and I expect the Assembly to endorse that message as strongly as it would if jobs were at stake in Shorts.

I have been a member of the Committee for Agriculture and Rural Development for a short time, but I am glad to be on it. This matter has been discussed and fought for at every level in the Province.

David McClarty (UUP)

The Member must draw his remarks to a close.

Jim Shannon (DUP)

I congratulate my colleagues for tabling the motion and I ask them to ensure that this issue does not signal the death knell for traditional farming in the Province.

Tommy Gallagher (Social Democratic and Labour Party)

I remind Members that I have declared an interest in farming in the Register of Members’ Interests.

I thank the DUP Members who tabled the motion. It is clear that the motion and the amendment have been accepted by all the parties, and that there is a strong united front on an approach to the issue that will lead to turning the Treasury’s thinking around. At least one precedent for that comes to mind: when the quarry tax issue was raised in the previous Assembly, our Ministers got together to lobby the Treasury and got a result. For the sake of the farming community, we cannot afford to give up on this issue. I do not believe that we should give any hint to the Treasury that this is its problem and that we are just going to roll over.

This is a uniquely Irish problem; it is unique to the island of Ireland, and I hope that we can build a strong campaign to change the Treasury’s mind. Other Members have covered the issue in detail and there is no point in going over that. With my experience, I am aware of the negative impact of this issue on land lettings, which are already down in number because people are worried about the problem.

We all know that the Irish land-letting system is not a money-making operation: it is used by elderly farmers in many of the cases of which I am aware. Nine times out of 10, the land is inherited from the previous generation, and because of age or health considerations, the owners have to retire from farming. They want to hand the farm over just as it was handed to them, and keep the land in the family. That is why the conacre system is used and why it has grown, and it is why land has been passed from generation to generation.

The message for the Department of Finance and Personnel and the Department of Agriculture and Rural Development is that they should work together and take the issue to the Treasury. Our message to the Treasury is that we are not going to give up on it.

Michelle Gildernew (Sinn Féin)

Go raibh maith agat, a LeasCheann Comhairle. I welcome the opportunity to speak to the Assembly on this serious issue. It will come as no surprise to anyone that I share the grave concerns that have been expressed here today. The discussions that I have had with the rural community, and the volume of correspondence that I have received, have left me in no doubt about the high levels of anxiety and worry that the McClean ruling has created.

I have listened to what Members have said in the debate. There are very few issues that unite the House in the way that this motion has done, and it is obvious, across all political parties, that the Irish attachment to the land is evident here today. I welcome the support that all Members have given on this issue.

Apart from the issues that Members have raised, there are other implications for farmers. Land letting has environmental consequences where land has been grazed and is no longer let.

Jim Shannon (DUP)

Further to Dr Paisley’s comment, is this a case where Ulster says no?

Michelle Gildernew (Sinn Féin)

I thank the Members for their interventions, and I thank all Members for their positive contributions.

I have written to the Treasury about the issue, and I discussed it with the Finance Minister in July, when the implications of the McClean ruling were becoming evident. I suggested that we went to the Treasury to discuss the issue and fight it jointly. Although the matter is primarily for the Minister of Finance and Personnel, I feel that I must assure the Treasury that this is a uniquely Irish situation and needs to be dealt with in that way.

Prior to the McClean case, agricultural land usually attracted two kinds of property relief that reduced inheritance tax to zero; those reliefs were generally available whether the land was farmed by the owner or let in conacre. In the McClean case, the land was let in conacre, and the decision was made to deny business property relief on the development value of the land. However, agricultural property relief was granted on the agricultural value of the land. That unhelpful change in how the law is to be interpreted will strike many as unfair, and I absolutely agree.

I have no particular sympathy with large property developments. Members will be aware of the people that I am talking about, who buy farmland for development purposes, develop sites on it and make use of tax reliefs meant for farmers to avoid inheritance tax. We all know, and it has been well articulated here today, that there will be farming families who rent out their land for myriad reasons, perhaps even with the intention of returning to farming themselves, who will be forced to sell their family farm as a result of the McClean ruling.

It is especially worrying that the ruling could affect land rented to close family members, such as between a mother and son or an uncle and nephew. I find that possibility particularly unjust, as it would drive farmers out of business.

The connection that farming families in Ireland have with their land have runs extremely deep. Members who have seen the film or play ‘The Field’ by John B Keane will know that the feeling for land is very strong in Ireland. As many Members pointed out, that has been with us for generations; it is unique to Ireland, as is the conacre system. It has its origins in past struggles between landlords and tenants, as was mentioned. We all know of cases where families are prepared to face poverty rather than face selling the family farm.

I have no doubt that the McClean ruling will be a great source of anguish for farming families. I believe that the McClean ruling is an attack on the conacre system and on farming families. The full and precise implications of the McClean ruling will become clear only when it is applied to the outstanding cases that have been held back by Revenue and Customs since the McClean ruling was first challenged.

Faced with the threat of huge tax bills, some non-farming landowners, who are in a position to do so, will have to recommence farming activities of some description with the aim of qualifying for business property relief. That is an entirely understandable reaction as they try to protect their family farms. However, that will disrupt existing farm businesses that rely on taking that land. Other families, especially in the outstanding cases, may have no choice but to sell land in order to meet inheritance tax liability. Not only does that seem grossly unfair, it could also disrupt the market for development land due to forced sales.

Therefore, we could end up with disruptions to normal farming activities; distortions to the development property market; and affected families losing their farms. I will be asking the Treasury how that could ever be seen as fair or acceptable.

I suppose, if we are to look for a plus side, the McClean ruling did not question agricultural property relief, as it was granted by Revenue and Customs. We can draw some comfort from that because that is the relief that is of most concern to the vast majority of farmers and landowners. However, that will not stop us from fighting the McClean ruling. I understand the concern that the eligibility of land let in conacre for agricultural property relief might be the next target for Revenue and Customs. We need urgent clarification from the tax authorities on that issue.

It normally falls to the Department of Finance and Personnel to make representations to the British Treasury on the subject of tax. However, given the potential impact on agriculture and farming families, Sammy Wilson and I have agreed to meet jointly with the Chief Secretary to the Treasury to press our concerns. I will push for clarification on agricultural property relief at that upcoming meeting. I will use the opportunity to outline the negative consequences of denying business property relief on land let in conacre. As an alternative, I will suggest that consideration be given to an exemption from inheritance tax for land that remains in agricultural use.

I also intend to raise the issue of the outstanding cases, because it seems extremely unfair that those people now face huge inheritance tax bills without having been given any prior warning or an opportunity to plan their tax affairs. However, I do not want to raise undue expectations that the British Treasury will respond sympathetically to any of the suggestions. As Members are aware, taxation is an excepted matter under devolution. The Assembly still has no fiscal autonomy and is unable to change tax law, but Members can be assured that this is a battle that I am prepared to fight.

The proposer of the motion, Ian Paisley Jnr, raised the issue of what definition of “farming” will satisfy Customs and Revenue. At this stage, I am not in a position to say precisely what type, or amount, of farming will qualify for business property relief. I suggest that individuals seek professional advice on those matters. In order to qualify for the relief, the business concerned must be deemed to not wholly or mainly comprise holding investments. Tax authorities’ judgements on such matters are usually made in the round, taking account of all the activities of the business. However, I agree with the Chairperson of the Agriculture Committee that interpretation is key, and we will all be looking very carefully at that.

We will push for clarification on agricultural property relief. Hope value was mentioned, and what Mr McGlone said about development land is right. There will be farmers, living beside a settlement of whatever size, fighting to ensure that that land is not zoned for development purposes, which will have an impact on housing. The ongoing work on PPS 21, previously PPS 14, and the further restrictions on individual properties in the countryside raises a concerning question: if we cannot live on our land and we cannot live in towns and villages, where is the next generation going to live?

It is my understanding that, for inheritance tax purposes, land is valued at the market value at the date of transfer. Market value, therefore, is influenced by expectations of future developments and includes hope value. However, valuation of land in individual cases is a matter for qualified valuers who take account of a number of factors when arriving at what they consider to be the fair market value.

Today’s debate highlights the widespread concern about the McClean ruling. There will be debates on the fairness or unfairness of any tax. However, we are all agreed that this ruling is particularly unfair. The McClean ruling must not result in a large amount of land being removed from the conacre market, to the detriment of the agriculture sector as a whole.

In fact, I have recently had discussions with my counterpart in Scotland about the food shortage issues that we face down the line. I do not think that it is in anyone’s interest that land that is currently in agricultural use, and has been so for generations, is taken out of agricultural use and that farming skills cannot be passed down to future generations.

I do not wish to see land taken out of the agriculture sector, nor do I wish to see families forced to sell land that they would otherwise keep in agriculture. That point was mentioned by many Members today.

My officials and I will work very hard on this issue. We will continue to look at it to ensure that every avenue is explored and that everything that can be done will be done. However, I wish to clarify that by saying that, although the point was made about quarry tax being abandoned, in this time of recession, it will be difficult to persuade the Treasury not to tax conacre land. However, we will have to do everything that we can to protect farming families from that terrible ruling. Go raibh maith agat, a LeasCheann Comhairle. I thank the Member for proposing the motion, and I support it.

Thomas Burns (Social Democratic and Labour Party)

I am grateful for this opportunity to speak today on this very important subject. First, I wish to thank the DUP Member Mr Ian Paisley Jnr for tabling the motion and for accepting the SDLP’s amendment. I am glad that there has been little difference across the House. This issue affects farmers in every constituency.

All farming families have experienced a certain amount of fear and dread, for they do not understand what the McClean ruling is all about. I am not a tax expert, and I cannot advise them on exactly what it means. All I know is that it is very bad news for small farms and for farmers who have land close to towns and settlements.

The McClean case is complex and is of great interest to me because it is a south Antrim case. I know neighbours of the McCleans who are devastated about the way in which this situation developed. However, for all Members who contributed to the debate this afternoon, the bottom line is that conacre letting has been deemed by the High Court and the Court of Appeal to be an investment activity, and the House of Lords has prevented any further appeals.

Every field that is let in conacre could be subject to 40% inheritance tax, especially those lands that have any potential for, or “hope” of, development. It is difficult to determine where such hope value exists, given that a new area plan is being developed and that, following the transfer of planning powers, local councils will be able to adapt their local area plans.

As we heard from Members, about one third of local farmland is let under conacre. That proves that conacre letting is a common agricultural practice and is not an investment activity among our farmers. In fact, it is a practice that lies at the heart of our farming community, so the ruling has the potential to totally undermine our whole agriculture sector and, indeed, the wider economy.

As we heard, each Member who spoke told a story from his or her constituency. Tom Elliott told us that his local church had been left 12 acres of land, but the tax bill was greater than the value of the land, and that church must deal with that situation.

There is no doubt that the decision must be reversed. The ruling is a grave injustice and an attack on local farming families. We must not end up in a situation whereby farming families are burdened with huge tax bills for simply keeping a farm in the family by passing it down from generation to generation, as has always been the tradition in Ireland, North and South. If the law remains as it is, it will lead to the forced sale of lands on the death of the senior farmer or landowner. Small farms will be broken up, the value of land will be driven down, and the historical conacre tradition will be devastated. The law must be fought at every level of government.

Various Ministers have worked on the case, and I welcome the fact that the Minister of Agriculture and Rural Development and the Minister of Finance and Personnel are prepared to take on the battle.

David McClarty (UUP)

Will the Member draw his remarks to a close?

Thomas Burns (Social Democratic and Labour Party)

I hope that the amendment will serve as a reminder to raise the matter with the British Treasury. That will be no easy task because taxation is a reserved matter, but the issue must be challenged at every opportunity.

I bring my remarks to a close by thanking Ian Paisley Jnr for proposing the motion. The House is united, and I support the motion and the amendment.

William McCrea (DUP)

I thank all Members who participated in the debate. Ian Paisley Jnr and I, as proposers of the motion, are happy to accept the amendment. We consider that it adds to, rather than detracts from, the motion. There is, therefore, oneness on the motion and the amendment.

The motion has been brought to the Floor of the Assembly because of the dismay and shockwaves that have been felt throughout the rural community as a result of the McClean conacre case. Moreover, Her Majesty’s Revenue and Customs has focused on aspects of the case that will have serious repercussions for the family farming traditions in Northern Ireland. As we all know, Northern Ireland has a long tradition of handing down farms, most of which are small or medium. I declare an interest as the recipient of my father’s small farm. Farmers hand down their farms from one generation to the next, entrusting that next generation do likewise after their little day on the farm.

Members are aware that farmers and farming have faced many challenges over recent years. Many farmers have been forced to seek alternative employment because the financial return from farming is not sufficient to meet their families’ needs. Financial realities of farming have led others to let their land while retaining ownership so that they can pass it down to the next generation.

The significance of the recent McClean case cannot be understated. I agree with the honourable Member for South Antrim Mr Burns that the case has a particular resonance for us because the area concerned is in our constituency; and I know the family concerned. The case has major implications for many farming families as well as for the wider McClean family. I congratulate the representatives of the McClean family who took the case so far. I regret, however, that their desire to pursue the case still further, to the House of Lords, was denied.

Grave concern exists about the implications of the policy change on the application of business property relief and agricultural property relief on Northern Ireland farms let in conacre. Undoubtedly, the policy shift by Her Majesty’s Revenue and Customs has implications for the future well-being of the industry.

Until recently, Her Majesty’s Revenue and Customs facilitated the total exemption from inheritance tax of agricultural land that was let in conacre by accepting that that land was eligible for both agricultural property relief and business property relief, a policy that was reflected in the inheritance tax manual, which served as the guidance for Her Majesty’s Revenue and Customs officials.

That exemption from inheritance tax was achieved, on the death of the farmer or the landowner, through the application of the agricultural property relief at 100% to the ordinary value of the farmland and, where the land had commercial development potential — hope value — in excess of its agricultural value. However, farming by letting in conacre attracted a second relief of business property relief, also at 100%, on the develop­ment value. That application by HMRC of exemptions of agricultural property relief and business property relief to land that is let in conacre ensured that more than half of the 27,000 family farms in Northern Ireland were free of inheritance tax on the death of a farmer, thus maintaining the integrity and the way of life that is experienced by the farming community throughout Northern Ireland.

However, April 2008 saw the special commissioners overturning that long-standing HMRC policy, and therein lies the dilemma that many face. That decision was taken to the Court of Appeal, where all three judges agreed with HMRC. To make matters worse, the family was denied the opportunity to appeal the judgement to the House of Lords.

It must be remembered that we believe that HMRC may be considering pursuing — the Minister mentioned this point — a number of other cases on the basis of that ruling and challenging the eligibility of business property relief to mitigate liability for inheritance tax. If that is so, the only manner by which those farmers could discharge their obligation under inheritance tax liabilities would either be to sell the land at hope value levels or to create what could be called “new commercial borrowing”. Banks are already placing an intolerable burden on the farming community and other businesses. Therefore, the likelihood of borrowing at any reasonable rate and facility is negligible, which holds a grave threat over the heads of the Northern Ireland farming families. As elected representatives, it is our duty to raise the issue at the highest possible level. We must have robust confidence that our cause is just, and we should hope and intend to come out with success at the end of the day.

It is also true that we cannot make promises that we do not have the power to keep. Therefore, we must be honest and honourable to the community, but we must fight the case. I am heartened by the fact that the Minister of Finance and Personnel wrote to the Chief Secretary to the Treasury to request a meeting. I am also heartened by the fact that the Minister of Agriculture and Rural Development and the Minister of Finance and Personnel will together fight a case that is an important aspect of the Northern Ireland farming community.

The inheritance of land in families is an important aspect of our farming tradition in Northern Ireland, and we want to protect it. The Treasury must know that Northern Ireland has a unique historical conacre system that does not operate in the rest of the United Kingdom. We cannot sit idly by, wish this away and hope that somebody else will rescue the situation. We must ensure that the Treasury knows exactly the state of the matter and its relevance to Northern Ireland. I trust that we will take that opportunity to force the issue onto the agenda here and at Westminster, where I know that this can be debated.

Mr Elliott rightly pointed out a serious issue. It is even worse than was acknowledged by the honourable Member for South Antrim Mr Burns.

That is because the land was left to the church in such a manner that it could not sell it. It was not a matter of selling the land in the hope of getting enough to cover the tax bill; it was left on the overriding condition that the land could not and should not be sold. Therefore, all that the church was getting was the value of letting the land in conacre. That is a very serious issue.

My friend Mr Irwin rightly mentioned the serious matter of a farmer who had to sell his land and was offered less for it than the tax bill that he faced. That demonstrates how serious the issue is. We must ensure that there is clarity. Clarity is one demand that we must make, because none of us is a tax expert. However, one thing is certain: our constituents look to us for advice. Until there is clarity on the conacre tax-relief issue, it will be a serious matter for us, as elected representatives, on which to give advice.

That is why we must ensure that the issue is raised with the Treasury. We must fight the McClean conacre ruling at Westminster and put it firmly on the desks of the chancellor of the exchequer is the government's chief financial..." class="glossary">Chancellor of the Exchequer and the Prime Minister. I thank the First Minister for doing that already. I thank every Member, and I thank the Minister of Agriculture and Rural Development and the Minister of Finance and Personnel for making representations. I assure Members that the debate has not only highlighted the seriousness of the issue but has shown the unanimity that exists across the Chamber to push the issue to its ultimate conclusion.

Question, That the amendment be made, put and agreed to.

Main Question, as amended, put and agreed to.

Resolved:

That this Assembly notes with extreme concern the possible extension of the focus on the “McClean conacre case” by HM Revenue and Customs and is deeply worried at the severe disruption which this could have on our family farming tradition in Northern Ireland; and calls on the Minister of Finance and Personnel and the Minister of Agriculture and Rural Development to engage with Revenue and Customs to find a suitable solution.

Adjourned at 6.27 pm.