Income tax relief on let land a ‘game-changer’

Offering relief from income tax to people who let land could be a “game-changer” in terms of attracting new land into the let sector and encouraging longer lettings, according to a new discussion paper.

The Central Association of Agricultural Valuers (CAAV) has produced a paper that examines how overhauling tax legislation could promote greater productivity in the farming sector.

The paper offers a range of potential tax measures that could assist entry, progression and exit from the farming industry, as well as encouraging innovation and investment.

See also: Tenant farmers call for major tax change to increase FBT terms

It says Brexit offers the greatest opportunity to determine agricultural policy since 1947 and there are simple changes that could make all the difference to the sector.

Income tax relief

One of the most interesting ideas put forward is to offer rent relief from income tax, following an example set by the Republic of Ireland.

The relief, which rises according to the length of let, has encouraged more letting of land over a longer time period.

“We have seen a 30% increase in the number of landlords offering tenancies for five years or more,” said CAAV secretary Jeremy Moody

“In conjunction with the new residential nil rate band amount for inheritance tax, giving relief on a home passed down the family, it could have a powerful stimulus as a retirement package.”

The UK model?

The report suggests the model in the UK could be to offer tax relief on let land for any new lettings over five years, to tenants who are not connected to the owner.

The rate of relief could increase with the length of the tenancy, perhaps rising sharply at 10 or 15 years.

The paper acknowledges there would be a “deadweight cost” to the policy as people who would let land anyway would benefit from the relief if they met the qualifying requirements.

However, it could make a substantial difference to many smaller landowners who tend to let for shorter terms or do not let at all, it adds.

Equal treatment

The paper points out that government tax policy has, in recent years, favoured companies paying corporation tax, leaving sole traders and partnerships somewhat behind, despite them being the preferred option in agriculture.

It argues that businesses should be treated equally for what they do and not discriminated against for the way in which they are structured.

Buildings allowance

To encourage investment and innovation it argues for the reinstatement of the agricultural buildings allowance with a rate of 5% and says buildings could also be brought within the scope of the annual investment allowance.

To help farmers embrace new technologies it calls for a £2.5m capital allowance for automation and digital technologies which could be available over a floating five-year period.

Farmers who diversify should also get tax relief for any abortive proposals – for example, where planning permissions is denied.

They should also have the ability to write off losses against the other part of the business, it says.

Risk management

Other ideas include introducing a UK version of the Australian Farm Management Deposit Scheme, which enables farmers to put aside money tax-free, which they can draw on in difficult years.

This would not be possible until the UK is outside the EU and free of the constraints of its state aid rules.

Mr Moody said a comprehensive overhaul of rural policy could create a productive, vibrant farming sector in the future.

“We hope this report will stimulate greater discussion and very much welcome responses to help take this conversation forward.”