Deferred Site Transaction Pending Planning

RoncoRider

Hi,

My father owns a farm and is transferring it to my brother. I am to inherit a site at the same time as this transaction. However, planning applications are tricky in the area and if I were to inherit a site there is the possibility that the site may not get planning in that exact location. The ambition would be then to try another location on the farm.

Is there a legal mechanism in place where an agreement or option agreement is drawn up where the exact location of the site is in limbo until such time that the planning is secured i.e. attempt to get planning on a site; if successful then we inherit, if it fails then try another site. At this stage the farm will have been transferred into my brothers name. However, for tax reasons the site would have to come from my father to me.

We have explored lots of alternative options regards site planning, deferring the transaction, inheriting from my brother directly etc. but I am specifically looking for the forums thoughts on the legal options we have to achieve what was outlined above.

Peregrinus

By "inherit" you mean you're going to get the site when your father dies, right? The plan presumably being that PP will be obtained for the site while your father is alive, so that the exact identity of the site will be known before you inherit.

But, is the site going to be on the farm that your father intends to transfer to your brother? Because, obviously, if that's the case then when your father dies the farm will not form part of his estate and and anything you do get will not be an inheritance from your father.

Can you explain in more detail how this is supposed to work?

RoncoRider

Inherit is the wrong word. I will be gifted a site at the exact same time my brother is gifted the farm - both are on the same plot of land and both will be coming from our father.

Due to the circumstances we cannot apply for planning before this transaction.

I am asking if there is a legal mechanism there that will allow us to be gifted a 1 acre plot, that the exact location within the farm is not determined until I have successfully achieved planning on. In other words I have an option to pick any 1 acre plot on the farm for a defined period of time after our farther gifts us this land.

Peregrinus

Is it intended that you can pick any 1-acre plot you like (provided you can get PP for it) or that the identity of the plot will be agreed between you on the one hand and your father or brother on the other?

RoncoRider

It is intended that I can pick any 1-acre plot you like (provided I can get PP for it)

sydthebeat

RoncoRider wrote: »

It is intended that I can pick any 1-acre plot you like (provided I can get PP for it)

I don't see the problem.

You simply don't start the transfer process until after you've been granted planning on whatever site has been successful.

The conditions of the will should bestow this right upon you.

Darc19

Why not have a pre-planning meeting with the council.

If you cannot show local need, it will be very difficult. Eg, working on the farm or other very local employment that means the location is more ideal.

Hannibal_Smith

Would you not pick a site now and have your dad lodge the application for planning permission now (him being the current registered owner) and if successful transfer it to you with the benefit of planning permission once its been granted? Come to some arrangement where you pay the fees and costs involved?

RoncoRider

sydthebeat wrote: »

I don't see the problem.

You simply don't start the transfer process until after you've been granted planning on whatever site has been successful.

The conditions of the will should bestow this right upon you.

Due to the circumstances of the transaction, that I wont go into here, this is not an option. We are under time constraints to complete this asap.

We have explored all the planning options; my question is more directed at the legal side/conveyancing options we have to achieve what I have outlined. It may well be that there is no such legal mechanism available to us and we will have to change tact.

Peregrinus

This is quite technically challenging and you definitely should be speaking to a solicitor about it before any steps at all are taken. You and your brother may need separate solicitors.

It seems to me that:

1. You and your father can enter into a deed under wnich your father grants you an option to purchase from him (for a nominal sum) a 1-acre plot to be selected by you, subject to the planning permission being first granted.

2. You then register an "inhibition" at the land registry against dealing in the land without your consent.

3. Your father will then not be able to transfer the land to your brother without your consent. You can make it a condition of your consent that your brother, at the same time as acquiring the land, enters into a deed granting you the same option, but expressed as a right to purchase the 1-acre plot from him. You register a new inhibition to prevent your brother selling/mortaging/otherwise disposing of the land without your consent until you have exercised your new option.

If the three of you agree, you can move straight to step 3 - i.e. Dad transfers land to your brother; he immediately grants you option; transfer of land and inhibition are registered at the same time.

Note that this doesn't provide 100% protection - e.g. if your brother is bankrupt, the land might be taken by his creditors and the inhibition wouldn't prevent that because becoming bankrupt is not a "dealing" in the land. (In theory you're exposed to this risk right now, if your father should be come bankrupt.) This is hopefull a fairly unlikely possibility, but it underlines the point that you don't want to faff around here; once you are granted the option you want to move on to exercising it with minimum delay. An inhibition is not supposed to do anything more than tide you over temporarily and minimise your risk while a permanent transaction is being planned and executed.

RoncoRider

Peregrinus wrote: »

This is quite technically challenging and you definitely should be speaking to a solicitor about it before any steps at all are taken. You and your brother may need separate solicitors.

It seems to me that:

1. You and your father can enter into a deed under wnich your father grants you an option to purchase from him (for a nominal sum) a 1-acre plot to be selected by you, subject to the planning permission being first granted.

2. You then register an "inhibition" at the land registry against dealing in the land without your consent.

3. Your father will then not be able to transfer the land to your brother without your consent. You can make it a condition of your consent that your brother, at the same time as acquiring the land, enters into a deed granting you the same option, but expressed as a right to purchase the 1-acre plot from him. You register a new inhibition to prevent your brother selling/mortaging/otherwise disposing of the land without your consent until you have exercised your new option.

If the three of you agree, you can move straight to step 3 - i.e. Dad transfers land to your brother; he immediately grants you option; transfer of land and inhibition are registered at the same time.

Note that this doesn't provide 100% protection - e.g. if your brother is bankrupt, the land might be taken by his creditors and the inhibition wouldn't prevent that because becoming bankrupt is not a "dealing" in the land. (In theory you're exposed to this risk right now, if your father should be come bankrupt.) This is hopefull a fairly unlikely possibility, but it underlines the point that you don't want to faff around here; once you are granted the option you want to move on to exercising it with minimum delay. An inhibition is not supposed to do anything more than tide you over temporarily and minimise your risk while a permanent transaction is being planned and executed.

We have had an initial meeting with our solicitor and outlined the above. They were to look into it further and see what options were available but were erring on the negative side about the plausibility of it so I have come here. Perhaps someone has seen this done before or that our solicitor hasn't been exposed to this sort of complicated transaction.

Your outlined solution is almost exactly what we are looking for but for the exception of the land being transferred from my brother to me. The idea is for the plot to be gifted from our father so we do not have to pay for it and also pay no gift tax. If I am gifted it from my brother there is a significant gift tax as the thresholds from brother to brother are much smaller than from father to son. Thanks.

Peregrinus

Let me pluck some figures out of the air, just to illustrate how this works.

Lets say that if your father sold the farm in the open market with no nonsense about given sites to anybody he'd get €400,000. That's the value of the farm.

Let's also say that if he sold a one-acre site suitable for (and likely to get planning permission for) a residence, he would get €20,000. So that's the value of the site.

Right. Your father give you, for free, an option to buy such a site for €1, exercisable whenever you are ready to exercise it. What you now have is a right to acquire an asset valued at €20,000 for a cost of €1. That's a gift from your father to you, and the value of the gift is €19,999, but we'll round it up to €20k.

Your father now gives the farm to your brother, but subject to his accepting the oblgations to give you a site worth €20k for, basically, nothing. So he's getting a farm worth €400k, but accepting an obligation to give away an asset worth $20k. That's a gift to him, and the net value of the gift is €380k.

When you exercise your option, and buy the site for €1, your brother is not making a gift (because he is already obliged to give you the site whenever you choose to take it) and you are not receiving a gift (because you already have the right to the site).

So it's crucial that your father grant you a legally enforceable option to acquire the site before he gifts the farm to your brother, and that your brother receives the farm explicitly subject to and on condition that he will transfer the site to you for €1.

Note there could be other tax complications if, by the time you exercise the option, the site you acquire has gone up in value to, say, €25k. For capital gains tax purposes when you acquire the option you are acquiring an asset (the right to receive a site of your choice) and when you exercise the option you are disposing of that asset and acquiring a different asset (the site). For tax purposes you'll be treated as acquiring the asset for €20 (even though you paid nothing for it) and disposing of it later for €25k (because you exchange it for an asset worth 25k). That's a capital gain of €5k, and capital gains tax will arise. This will be your tax liablity; your brother and your father won't have any liability for it.

This will be a good problem to have, since it means your site has gone up in value since you acquire the right to receive it. But if you'd rather not have this problem then that's another reason for moving smartly to chose your site, get planning permission and complete the transfer. The quicker you do this the less likely it is that a signficant gain will have accrued.

Marcusm

I will note that Peregrinus, as usual, has set out a comprehensive solution to your problem which some solicitors might not be imaginative enough to describe.

However, on the tax point, there should not be any need to concern yourself with any increase in the value of the land between the grant of the option (€20k) and it exercise (€25k in the example) as for the granted of the option, no gain would arise on its exercise but rather the option and the purchase are merged into a single transaction involving the purchase of the land giving a base cost of (€20k). The treatment of the grantor and the grantee can this diverge. Please note also that your father may trigger a capital gain on the grant of the option.