Chancellor Philip Hammond has been urged to use his upcoming Budget to provide a better fiscal framework for farm tenancies.
The Tenant Farmers Association (TFA) is urging the Chancellor to consider in his Autumn Budget reforms to the taxation environment within which rural landlords make decisions about letting land to encourage longer term Farm Business Tenancies (FBTs).
The TFA is currently working with Government on measures to help the agricultural industry build resilience, raise productivity, manage risk and secure its long-term profitability.
Within the tenanted sector of agriculture reliant upon FBTs, the TFA says it is "difficult, if not impossible" to achieve these goals when the average FBT length is only 4 years and when 85% of all new tenancies are let for no more than 5 years.
It has been 23 years since the introduction of the Agricultural Tenancies Act 1995 which ushered in FBTs.
TFA Chief Executive, George Dunn said: “The legislation represented a major deregulation of the agricultural let sector and at the time there were great hopes that it would increase opportunities both for new entrants and progressing farmers.
“However, nearly two and a half decades on and neither of these objectives have been attained. Whilst we saw an increase in the amount of let land through the early years of the new legislation this has, by and large, tailed off.
“However, the biggest failing of the legislation has been the perpetuation of short lengths of term leading to inefficiency”.
Mr Dunn added: “Farming is a long-term endeavour requiring significant capital investment, patience, good soil management and the ability to balance profitable years against the bad.
“Short term tenancies are holding back progression, investment and sustainable land use. Farm Business Tenancies have been too short for too long and this must change,” he said.
The TFA believes that average term lengths on FBTs should be 10 years or more and that the Government should be using fiscal levers to encourage a more sustainable position.
Tax changes
The group has proposed the following tax changes to improve lengths of term and productivity on tenanted holdings.
• Restricting the generous, 100% Agricultural Property Relief from Inheritance Tax (currently available to all landlords regardless of the length of time for which they are prepared to let land) only to those prepared to let for 10 years or more, or on new tenancies with security of tenure under the Agricultural Holdings Act 1986.
• Offering landlords prepared to let land for 10 years or more the ability to declare their income as if it was trading income for taxation purposes.
• Reforming Stamp Duty Land Tax to end the discrimination against longer tenancies.
• Abolition of Capital Gains Tax rollover relief for purchases of land (other than in cases where land has been lost to compulsory purchase) and instead allowing relief for capital gains invested into fixed equipment on let holdings to drive on farm productivity, profitability and resilience.
