Diversification of the Farm

The Agriculture Bill, which is currently passing through government, will radically change the calculation and payment of farming subsidies after the UK leaves the EU. Payments favouring traditional farming are set aside and emphasis is instead placed on improving the environment and encouraging access to the countryside. As such, farmers are encouraged to adapt in a time of deep uncertainty.

Although diversification projects can be hugely successful, they can also lead to dire consequences for both landowners and tenants if professional advice is not taken at the outset.

Consequences for tenants

A primary concern should be ensuring that the Farm Business Tenancy is not breached as a result of the new activity. Such agreements will often restrict the permitted use of the land to be agricultural only and impose obligations on the tenant to farm in accordance with the rules of good husbandry. Breaching such obligations could forfeit the tenancy, so particular care and scrutiny of the tenancy agreement is essential.

Tax consequences are key for landowners

Provided the land is actively used for the ‘purpose of agriculture’, a claim for Agricultural Property Relief from Inheritance Tax can be made upon death. Where successful, this can provide up to 100% relief on the agricultural value of the land and buildings. However if the land is used for non-agricultural purposes, the ability to apply for Agricultural Property Relief will be lost.

For assets within a partnership or company, Business Property Relief will be available on ‘relevant business property’, but not where that business is deemed to be wholly or mainly for investment. Particular care must then be taken if the majority of the income for the business stems from what HM Revenue & Customs consider an investment, such as letting buildings for office space or land for camping.

Not all change is bad and we acknowledge just how successful diversification of the farm can be. However, before you embark on a new project, we strongly encourage that professional advice is taken. At Birkett Long, our dedicated Agriculture & Estates team are on hand to provide wide-ranging, expert advice.