Taxation: Agricultural productivity, land occupation and use after Brexit

Overhauling tax legislation offers a key way to promote greater productivity in the farming sector after Brexit, and now is the time to see how best to do that following the publication of a new discussion paper.

According to the Central Association of Agricultural Valuers, which has produced the discussion paper exploring fiscal packages capable of shaping a vibrant farming sector, some simple changes could make all the difference to the industry. “Brexit offers the greatest opportunity to determine agricultural policy since 1947, providing the chance to improve the sector that provides much of our food, environment and landscape,” explains Jeremy Moody, secretary and adviser to the CAAV. “Such a chance to shape our own destiny may not come again.”

The paper offers a review of potential tax measures that could aid agricultural and environmental productivity. It considers ways to assist entry, progression and exit from farming; innovation and investment; resilience; and the management of risk.

“One of the key factors that needs addressing is access to land,” explains Mr Moody. This involves freeing up more land for rent, as well as ensuring that land farmed in-hand is passed down to the next generation who will farm it best.

“Agriculture, short of physical investment in recent years, is on the cusp of a major technological revolution,” he adds. “And with many keen and skilled potential entrants, it is at a point where an improved tax system could yield real dividends.”  A recent Irish study showed that putting land into the hands of trained farmers increased output by 12%, more than the increase achieved by passing land onto the younger generation.

The successful introduction in Ireland of rent relief from Income Tax, geared to length of tenancy, has encouraged more letting of land over longer time periods. “We have seen a 30% increase in the number of landlords offering tenancies for five years or more,” says Mr Moody. “In conjunction with the new Residential Nil Rate Band Amount for Inheritance Tax, giving relief on a home passed down the family, could have a powerful stimulus as a retirement package.”

While Government tax policy has favoured companies under Corporation Tax this has left farming’s sole traders and partnerships behind.  “Businesses should be treated equally for what they do, not discriminated against for the way they are structured.”

Greater investment and innovation will be key to future productivity and resilience, and the CAAV is arguing for the reinstatement of Agricultural Buildings Allowances to encourage such investment. “To help farmers embrace new technologies there should also be a £2.5m capital allowance for automation and digital technologies over five years.”

While boosting agricultural productivity is one aim post-Brexit, it’s also important to consider the wider rural economy, and the value of diversification, warns Mr Moody. “Diversifying can be a risky move, so it’s vital that support is available.” This includes providing tax relief for abortive proposals, and the ability to write off losses against the other part of the business.

When it comes to environmental measures, we need to explore how taxation can encourage private investment in land management to boost soil carbon, water storage, and ecosystem health, explains Mr Moody.  Answers may lie in a model in the United States or some form of Natural Capital Allowance enabling businesses to claim tax relief on expenditure that enhances the environment.

“By undertaking such comprehensive overhaul of rural policy, the Government can truly create a productive, vibrant farming sector in the future,” says Mr Moody. “We hope that this report will stimulate greater discussion and very much welcome responses to help take this conversation forward.”