Readers’ forum: VAT on farmland sale

I am concerned that two farmer clients have some unexpected VAT problems. Basically two brothers used to own farmland jointly as a partnership. They were VAT registered as a partnership and used the land for farming activities.

It seems that the partnership opted to tax the land with HMRC about five years ago because they were thinking of obtaining planning permission to build houses so that it could be sold at a higher value to a property developer. The partnership wanted to claim input tax on the promoter fees hence the option to tax being made. However this plan never materialised.

Two years ago the land was transferred at a nil value so that each brother now owns 50% of the land. The brothers have continued to farm with separate VAT registrations as sole traders so the land transfer was treated as the transfer...