Farming in the Uplands - ARCHIVE: Defra

Environment, Food and Rural Affairs Committee: Evidence Ev 85
or Agricultural Tenancies Act 1995 but requires individual consideration in respect of more informal
arrangements. As discussed at the hearing, there are also specific requirements for agri-environment
agreement holders—including where they are tenant farmers—that are set out in the scheme handbooks.
In addition, the Minister promised to write to the Committee to clarify the change made by the previous
Government in relation to the rules regarding succession to a tenancy.
Following a recommendation of the Tenancy Reform Industry Group, the previous Government
amended the Agricultural Holdings Act 1986 to make changes to the “livelihood test” for succession to a
tenancy. Previously a potential successor to a tenancy had to have earned his livelihood from agricultural
work on the holding from five out of the last seven years in order to meet the “livelihood test”. This
discouraged farm tenants from diversification as it could jeopardise a successor’s chances of succeeding to
a tenancy if he was carrying out non-agricultural work. However, the amendment made by the Regulatory
Reform (Agricultural Tenancies) (England and Wales) Order 2006 provides that income from diversified and
oV-farm activities can be taken into account in the “livelihood test”, where the landlord has given consent
for the diversification.
We understand there have been concerns raised in the Tenancy Reform Industry Group by the NFU and
TFA that some landlords are unwilling to renew consents which were given before the legislation was passed.
Following a small survey by the Central Association of Agricultural Valuers, TRIG concluded that there
was not the evidence to suggest that this was a problem, but it has been agreed that the matter should be
kept under review.
The Tenant Farmers’ Association’s proposals in their Vision for Agriculture to modify the taxation system to
encourage longer-term tenancies
The Tenant Farmers Association’s proposals to modify taxation in their Vision for Agricultural largely
reflect recommendations made in the Report of the Tenancy Reform Industry Group (TRIG) at the end
of 2003.
These are:
– An amendment to the definition of agricultural property relief for the purposes of inheritance tax,
so that a landlord does not lose or jeopardise his entitlement to agricultural property relief if he
agrees to a tenant diversifying out of agriculture.
— Deferment of Capital Gains Tax on improvements to let agricultural holdings.
— For the purposes of assessing Stamp Duty Land Tax, all farm business tenancies that are let for
terms in excess of 10 years to be deemed to be 10 year tenancies.
— A review of the schedular system for income tax and corporation tax to remove obstacles to letting
and diversification (ie the arrangements whereby losses under one Schedule cannot be oVset against
profits under another Schedule).
— A review of the VAT position so that where the purpose of the letting is for agricultural use and
the dwelling is ancillary to that, the whole be liable for VAT, with VAT due on the whole rent and
reclaimable on all relevant costs.
— The current period of ownership of seven years for landlords to benefit from Agricultural Property
Relief to be aligned with the period of ownership for an owner occupier, that is two years.
However, in its Vision for Agriculture, the TFA suggests that it might be time for a more radical reform
of Inheritance Tax. For example, it questions whether landlords should automatically be entitled to 100%
relief if they choose to let land only on short term let and also suggests that agricultural property relief should
only be for those landlords who let their holdings for 10 years or more without a landlord’s break clause.
The TFA also argues that a landlord who has decided to let land on a long term basis should be able to
treat the income as earned income from which he could oV-set costs and losses from his wider business
interests.
When the TRIG proposals were originally put forward in 2003 the Treasury made clear that it would need
to see concrete evidence before it would contemplate any changes to fiscal arrangements. I have indicated
to the Tenancy Reform Industry Group that I am willing to consider any evidence that it can put forward
that taxation issues are a barrier to diversification or longer term tenancies, but ultimately this is a matter
for the Chancellor.
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An update for the Committee on the research Defra has commissioned into water markets (Q224) and the
knowledge barriers that this work has identified
There are a number of Projects underway in this area
— Barriers and opportunities for use of Payments for Ecosystem Services (PES): URS/Scott Wilson
are undertaking this short study commissioned by Defra to review the barriers and opportunities
for use of PES in a domestic context. The study is due to be completed in March 2011.