Annex 1: Minor changes in the law made by the Act: Change 59: Averaging: section 221
This change gives statutory effect to ESC A29 (relief for fluctuating profits). It treats the intensive rearing of livestock or fish on a commercial basis for the production of food for human consumption as farming for the purposes of averaging.
Averaging applies only to farming, market gardening and “creative activities”. Farming is the occupation of land for the purposes of husbandry. Tax law has always drawn a distinction between profits resulting from the taxpayer’s occupation of land and profits from an activity to which the occupation is merely incidental in the sense that the activity must be carried out somewhere. This is why the intensive rearing of livestock and fish (so-called “factory farming”) is not farming. Such creatures do not live on or draw their sustenance from the soil because they are largely kept in buildings or tanks and so the profits from them do not arise from the occupation of land.
But ESC A29 permits the extension of the rules for averaging to the intensive rearing of livestock or fish on a commercial basis for the production of food for human consumption. It does this by extending the definition of farming for these purposes.
Section 362(1) of CAA permits a near-identical extension by defining husbandry to include the intensive rearing of livestock or fish on a commercial basis for the production of food for human consumption, in the context of defining “agricultural land”. And section 115(2) of the Inheritance Tax Act 1984 permits a similar extension in the context of defining “agricultural property” provided certain conditions are met.
Section 221(3) of this Act ensures that the averaging rules apply to the intensive rearing of livestock or fish without the need to extend the definition of farming itself in section 876.
This change is in taxpayers' favour in principle. But is expected to have no practical effect as it is in line with current practice.