The Tenant Farmers Association (TFA) is urging the Chancellor of the Exchequer to consider including tax reforms which would help incentivise longer farm tenancies as part of the autumn budget.

The TFA is 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, it is difficult, if not impossible, to achieve these goals when the average Farm Business Tenancies is only four years and 85% of all new tenancies are let for no more than five years.

TFA chief executive George Dunn said: “It has been 23 years since the introduction of the Agricultural Tenancies Act 1995 which ushered in Farm Business Tenancies.

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."

Shorter lease terms

Dunn said the biggest failing of the legislation has been the "perpetuation of short lease terms", something he says has led to inefficiency.

“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."

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.

The TFA has proposed the following tax changes to improve lengths of term and productivity on tenanted holdings:

  • Restricting 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 the 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.

“There is a growing consensus that the taxation environment within which landlords make decisions is encouraging a plethora of short-term interests in land and that this is leading to unsustainable economic outcomes. We cannot allow this situation to perpetuate,” added Dunn.