Tenant farmers facing ‘punitive’ land tax raid

Farmers taking up new tenancies – or having old ones updated and renewed – have been warned they could face unanticipated tax bills amounting to many thousands of pounds under the recently introduced land and business transaction tax (LBTT).

And the Scottish Tenant Farmers Association (STFA) yesterday called on the Scottish Government to exempt agricultural tenancies from this “punitive” Scottish land tax, claiming it would penalise new entrants by levying a tax on both new lettings and the assignation of existing tenancies.

The STFA said that that one of the unintended – and, so far, little understood or appreciated – consequences of the LBTT, introduced in 2015 to replace stamp duty, was the impact it would have on those taking up new tenancies.

“The impact of this land tax on the tenanted sector has only just become apparent now that LBTT is in operation,” said STFA Chairman Christopher Nicholson.

He said that the new tax regime typically affected new leases, predominantly ten-year limited duration tenancies (LDTS) which had been granted after 1 April 2015 – but added that a 1991 lease being re-granted for tax purposes would also be liable.

And while landlords could gain considerable inheritance tax benefits from persuading tenants to sign up to new leases, he warned the tenant could find himself facing a considerable LBTT bill.

“The new assignation proposals in the Land Reform Act for 1991 tenancies may also be affected,” said Nicholson, who said that as the legislation currently stood it was likely that an assignation for value would trigger such a liability if it was above the £40,000 threshold.

He also said that tenants taking on a long-term LDT would find themselves being taxed on the accumulated rent over the period of the lease.

“For example, a 20-year lease of a 400 acre farm with an annual rent of £15,000 would create rental payments over the 20-year period of £300,000 giving rise to a tax bill of over £4,000 to be paid at the start of the lease,” he said.

“This amounts to penal treatment of the let sector and is obviously not what was originally intended. It flies in the face of government policy to encourage longer-term tenancies and the transfer of existing tenancies to new entrants and developing farmers.”

He said that the STFA had already raised the issue with the Scottish Government and would be looking for industry support to lobby for an exemption for the agricultural tenanted sector.

“The potential to grow the tenanted sector as support rules tighten and farming becomes less attractive to landowners in the more marginal areas is one of the of the few silver linings in the Brexit cloud and it would be a spectacular own goal if government tax policy killed this prospect dead in the water,” concluded Nicholson.