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Income tax breaks would be more effective at incentivising long-term land leasing than changing inheritance tax rules, the Central Association of Agricultural Valuers (CAAV) has said.
The organisation’s secretary, Jeremy Moody, is lobbying the UK government to introduce tax incentives for long-term land leases (with support from the likes of the UFU) so that farmers have more security and confidence to invest in rented land.
“There’s quite a lot of discussion underway, but nothing substantive to say about it publicly yet,” Moody told the Irish Farmers Journal.
The CAAV is pushing for incentives similar to the Republic of Ireland (ROI) where landowners can receive rental income up to €40,000 tax-free if leases are in long-term agreements.
However, a key lobbying focus of the Tenant Farmers’ Association, a powerful organisation which represents non-landowning farmers in England and Wales, is to link long-term agreements to inheritance tax in the UK. They maintain that leases of at least 10 years should be a requirement for non-farming landowners who want to avail of the 100% inheritance tax exemption under Agricultural Property Relief (APR).
It is also an idea that has been discussed at Westminster, including in July 2018 by the then Defra Farm Minister (now Defra Secretary of State) George Eustice.
“All our analysis suggests there are too few tenancies that would be made longer by this and many, many more landowners would be frightened out of letting,” Moody suggested.
He argues that any doubt around eligibility for APR would make more landowners farm their land themselves so that they have certainty that their successor won’t have to pay inheritance tax.
Uproar
But, if the UK government did introduce income tax exemptions for longer term leases, would there not be public uproar for giving tax breaks to the owners of large estates?
“That is the obvious point for critics,” Moody said, “but this is income which in many cases wouldn’t otherwise exist because the people who are likely to be drawn in to letting are not making much money out of farming now.”
He also maintains that the increased productivity from better-managed land would outweigh any lost revenue arising from income tax breaks.
NI is the region of the UK which could benefit most from longer-term land leasing as one-third of land here is currently let out in short-term conacre arrangements.
Income tax is a UK-wide matter, although there could be scope to allow tax breaks for long-term leases to apply to NI only.
It would mirror the UK government’s decision to devolve corporation tax to Stormont in 2015, which also stemmed from more favourable rates being available in ROI.
“The Treasury will be reluctant to make devolved exceptions for income tax because it could become a precedent for other similar policies in the future,” Moody maintained.
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