Contract farming agreements are gaining fresh momentum as a practical lifeline for farmers navigating the government’s controversial inheritance tax reforms.
A new Monitor Farm Scotland Q&A guide is helping farmers and contractors better understand the opportunities and challenges of contract farming agreements (CFAs).
Proponents of it say the model could help address some of the complexities introduced by recent changes to Inheritance Tax (IHT).
Jack Frater, an agricultural consultant at Edwin Thomson and contributor to the guide, said CFAs could become a practical solution for farming families looking to plan for the future while retaining land and business taxation status.
The guide was published following a Monitor Farm panel evening in Roxburghshire, where farmers and contractors shared real-world experiences of setting up and running CFAs.
Unlike traditional tenancies, CFAs offer flexibility, allowing landowners to stay involved in the farm business as much or as little as they wish – while giving contractors and new entrants an opportunity to expand their operations.
Mr Frater, who chaired the panel, noted that the government’s IHT reforms have prompted some overdue discussions:
“If anything, it has forced conversations that people have been putting off for a long time,” he said.
He explained that CFAs are increasingly being considered in cases where the next generation is not currently involved in the farm business.
“It means that the older generation can transfer the assets and take a step back, but with the idea of keeping the business going to ensure the relief remains, or is avoided by transferring over seven years.”
However, Mr Frater also warned of specific issues that need to be considered – particularly rules surrounding farmhouses.
“If the older generation are planning to hand the business over, they can’t then remain in the farmhouse as it can be seen as still benefitting from the asset,” he said.
“It is imperative that people speak to their accountant and advisor well in advance of making any decision to ensure they are not opening themselves up to further liability.”
While the IHT reforms have not altered how CFAs are structured, they have underscored the importance of proper documentation to safeguard the landowner’s position.
Mr Frater is also optimistic about the future: “I do think there will be more opportunities for contractors going forward as more land is likely to become available in one form or another.”
Grace Reid, programme manager for Monitor Farm Scotland, said CFAs are becoming a key feature of modern farming:
She said: “Contract farming agreements have become an increasingly useful and important part of modern farming set-ups.
“The Q&A Guide is a practical publication featuring people who have in-depth experience of setting up and operating CFAs.
"It’s a helpful start for both farmers and contractors to get the ball rolling and is free to download.”
