Tenant farming

The Tenant Farmers’ Association (TFA) wants landlords to consider letting Farm Business Tenancies (FBTs) in England and Wales for longer to improve security and environmental sustainability e.g. soil management.

The TFA would like to see FBTs of at least 10 years to receive the 100% Inheritance Tax relief, which is currently available, and thereby improve value for money for the tax payer.

The TFA has long proposed a range of new fiscal measures to achieve this but launched a particular FBT10+ campaign for 2015. EDM 760 (25 November 2015) also supports the TFA’s campaign.

The average lengths of FBTs are currently less than four years when accounting for all land but for those including whole farms they average 10 years. The land farmed under FBT agreements in England was 1.1m ha in 2013 – around 11% of the total farmed land.[1]

The Country Land and Business Association (CLA) has highlighted that shorter term tenancies can be beneficial for new entrants and bank lending is often more dependent on a solid business plan than length of tenure. Meanwhile, the National Farmers’ Union believes that FBT duration is a very complex subject with many criteria influencing the decisions of landlords with flexibility benefiting both landlords and tenants. Neither agree that FBTs should have a minimum term of 10 years.

The UK Government has said it recognises the advantages of longer tenancies but also the need for flexibility in tenure. Ministers have said that the awaited 25 year food and farming plan will reflect discussions on different business models.

Farm Tenancies – two main types

There are two main types of agricultural tenancy:

  • those agreed before 1 September 1995 – known as 1986 Act tenancies (or Full Agricultural Tenancies); and
  • those agreed after 1 September 1995 – known as Farm Business Tenancies.[2]

The gov.uk page Agricultural Tenancies outlines specific provisions relating to these.

1986 Act Tenancies

The Agricultural Holdings Act 1986 was introduced to provide more security to tenant farmers; in particular when they sought to take advantage of opportunities for diversification and to participate in agricultural and environmental schemes.

Generally, tenancies granted under the 1986 Act have lifetime security of tenure.

1986 Act tenancies granted before 12 July 1984 carry statutory succession rights, on death or retirement, provided the potential successor meets certain eligibility criteria. Two tenancies by succession can be granted, so it is possible for the tenant’s family to work the holding for three generations.

A 1986 Act tenant can also name a successor to take over the holding when they retire, with similar conditions for succession to those that apply on succession on death.

Farm Business Tenancies (FBTs)

Agricultural tenancies agreed since 1 September 1995 under the Agricultural Tenancies Act 1995, are known as Farm Business Tenancies.

The 1995 Act was introduced to counter the 1986 Act which had mainly deterred landlords from letting on to the market because of the security of tenure it offered or legal loopholes had been found to avoid its requirements.

The new terms possible under Agricultural Tenancies Act meant that a large area of land came on to the letting market in 1995. The amount of available land stabilised in 2003, partly due to the influence of the Common Agricultural Policy (CAP) payment schemes at the time.[3]

To be a Farm Business Tenancy, at least part of the tenanted land must be farmed throughout the life of the tenancy, and the tenancy must also meet one of two conditions:

  • If the tenancy is primarily agricultural to start with, the landlord and tenant can exchange notices before the tenancy begins confirming they intend it to remain a Farm Business Tenancy throughout. This will allow tenants to diversify away from agriculture – only where the terms of the tenancy agreement allow this; or 
  • If the landlord and tenant don’t exchange notices before the tenancy begins, the tenancy must be primarily agricultural to be considered a Farm Business Tenancy.

Landlords and tenants of a Farm Business Tenancy can end the tenancy by issuing a notice to quit. The minimum notice period to quit is 12 months.

An assessment of the Agricultural Tenancies Act 1995 was published in 2002.[4] This included the extent to which the Act had improved the economic efficiency of land use. The assessment concluded there was some evidence of an improvement in economic efficiency, but clearer evidence that the Act had resulted in an increase in let land and that Farm Business Tenancies had provided a simple vehicle to enable farm businesses to expand.[5]

The NFU believes that FBTs have allowed farmers to expand their businesses by taking on an extra block of land and in doing so spreading their costs and having a more viable unit.[6]

Tenant Farmers’ Association (TFA) 10+ campaign

The 1995 Act was essentially a deregulatory measure but the TFA is concerned that the flexibility that the legislation offered over past tenancy measures is not being used by landlords (e.g. to offer longer tenancies), yet they are benefiting from the tax measures which it introduced.

Since 1995 all landlords with land in their possession for at least seven years, have the benefit of a tax advantage of 100% agricultural relief for inheritance tax on the agricultural value of their land, regardless of the nature of the tenancy agreement offered.

Over the 20 years of the legislation, the TFA highlights that the length of term on an FBT has averaged almost four years although there are ‘beacons of good practice’ such as the Duchy of Cornwall which has a 20 year average for its FBTs.[7] The Central Association of Agricultural Valuers reported that the 2013 average hit a new low of just over three years. The TFA is concerned that with much higher demand than supply, landlords can offer short terms for FBT, for high rents with little risk.

The TFA argues that these short tenure terms are holding back progression, investment and sustainable land use whilst landlords are benefiting from the tax relief introduced by the 1995 Act.[8] The Association therefore questions how much value for money the tax payer is getting from this arrangement.

The TFA is calling for the tax relief to only apply to land let on FBTs where landlord are prepared to let on at least a 10 year basis.

The National Farmers Union does want to see more land let on the open market for a longer term but does not agree that there should be a minimum term of ten years or that specific tax measures will achieve that. The NFU stresses that flexibility must be kept with different lengths of terms and different types of agreements being available to meet all landlords and tenant requirements.[9]

In June 2014, the House of Commons Public Accounts Committee’s (PAC) Report Tax Reliefs highlighted that, in the periods 1999–2000 and 2012–13, the value of agricultural property relief and business property relief had increased by 160% and 200% respectively, but Inheritance Tax revenue had risen by only 10% over this period. HM Treasury told the PAC that the total annual costs of agricultural property relief and business relief were “relatively small” (£370 million and £385 million respectively at June 2014).[10] HM Revenue and Customs estimates the cost of agricultural property relief for inheritance tax for 2015-16 at £395m.[11]

Landowner perspective (CLA)

The Country Land and Business Association (CLA) has expressed concerns that any short-term let is being seen as a ‘greedy landlord’ with no consideration of the landowners’ objectives. The CLA believes that the TFA’s arguments oversimplify the situation.[12]

The CLA Chair spoke at the TFA conference in September 2015 and reported on a survey of the CLA membership about their tenancies and their attitudes towards them. He highlighted that the survey indicated that:

  • 90% of AHA tenancies that ended were re-let on FBTs for an average of 9.5 years
  • Generally bare land was let on an FBT of almost six years and if buildings and a farm house were added, the average was more than 15 years.[13]

The CLA highlights that:[14]

  • A strong farming industry needs flexibility that allowed landowners and tenants to agree terms specific to them.
  • The agricultural sector was more complex and commercial than before with a ‘patchwork’ of different agreements.
  • There are many situations where longer term agreements don’t work and new entrants could be put off by long-term commitments. Equally landlords may not take a chance on a promising young tenant over established businesses with longer tenancies.
  • Attempts to force arbitrary tenancy lengths may dissuade landowners from entering into tenancy agreements at all, which would exacerbate existing land supply issues.
  • Bank lending is more dependent on a solid business plan than the length of tenure.

Inheritance tax relief

The CLA highlights that:[14] 

  • The TFA’s proposal to link Inheritance Tax relief to length of tenancies would ‘awaken fear in a lot of people to a return to the days when you would let land and never see it back in your lifetime’. It would reduce the flexibility of those offering land for letting and therefore less land would be offered – not ideal for new entrants to farming.
  • Institutional landowners do not benefit from the Inheritance Tax relief and therefore the TFA proposal would have little, or zero effect on: Crown, Duchy or Church estates, on land owned by Colleges, water companies, County Councils, The National Trust, or the RSPB.

Government position

The UK Government has acknowledged that longer term tenancies are important for tenants so that they can invest and grow in their business and indicated that agricultural tenancies will be part of the discussions on Defra’s 25-year Food and Farming Plan. Defra Secretary of State, Liz Truss met the TFA to discuss FBTs in June 2015.[15]

In a written answer (13 July 2015), Farming Minister George Eustice said:

The Government recognises that longer tenancies for some farm businesses are important to provide tenants with security to invest and grow their businesses. Flexibility to agree contracts that suit a range of business needs is also important to enable a diverse farming sector. We are working closely with industry to develop policy priorities for a 25-year Food and Farming Plan. Agricultural tenancies and other farming business models will be considered as part of these discussions to help deliver a competitive farming sector in future.[16]

Neil Parish MP, Chair of the Environment, Food and Rural Affairs Committee has regularly questioned Ministers about agricultural tenancies. In July 2015, he asked the Chancellor of the Exchequer if he would review the taxation of rural land, how that taxation effected decisions to let land on farm business tenancies and if he would make it his policy to limit Agricultural Property Relief from inheritance tax to encourage longer term farm business tenancies. The HM Treasury response to all of these questions was the same:

The government understands the importance of the agricultural sector to the UK economy. The Government keeps all taxes under review.[17]

25 year Food and Farming Plan

The UK Government is currently developing a 25 year food and farming plan which “will be published in the spring”.[18]  Ministers have said that this will cover:

new people coming into the industry and the enhancement of agri-technology so that we produce food for the nation and also export a great deal of our wonderful products. We want to ensure that there are people coming into the sector and that they bring skills with them which will be so valuable to us.[19]

[1] Defra, Farm rents 2013/14 – England, 21 March 2015 and Defra, UK Agriculture 2013, May 2014

[2] Defra, Business and enterprise – guidance: Agricultural tenancies, 22 August 2012

[3] NFU online, Farm tenancies, flexibility and the ten year term, 14 April 2016

[4] Ian Whitehead et al, An economic evaluation of the Agricultural Tenancies Act 1995, April 2002 (prepared for Defra and National Assembly for Wales Agriculture Department)

[5] HC Written Question 5931 13 July 2015

[6] NFU online, Farm tenancies, flexibility and the ten year term, 14 April 2016

[7] Farmers and landlords air views in heated tenancy debates, Farmers Weekly, 27 June 2015

[8] Give tax relief only on longer farm business tenancies – TFA, Farmers Weekly, 11 March 2015

[9] NFU online, Farm tenancies, flexibility and the ten year term, 14 April 2016

[10] HC 282, Third report of the Public Accounts Committee 2014-2015, Tax reliefs, June 2014 para 18

[11] HMRC, Estimated costs of the principal tax expenditures and structural reliefs, 31 December 2015

[12] Farmers and landlords air views in heated tenancy debates, Farmers Weekly, 27 June 2015

[13] CLA, CLA President’s Speech at the TFA Conference, 1 September 2015

[14] Ibid and Farmers and landlords air views in heated tenancy debates, Farmers Weekly, 27 June 2015

[15] HC Written Question 5523 8 July 2015

[16] HC Written Question 5930 13 July 2015

[17] HC Written Question 5527 13 July 2015 and HC Written Question 5524 13 July 2015

[18] HC Deb 6 January 2016 c132WH

[19] HL Deb 18 January 2016 GC20

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