Consider all options before entering any new farming arrangement

It is nearly 21 years since Farm Business Tenancies (FBT) were introduced to encourage more letting of land and increase opportunities for new entrants but some would argue that while they did free up letting contracts, and in the early days expand new lettings, they have done little to encourage investment and sustainable land use.

The average FBT over two decades of the legislation is just over four years according to the Tenant Farmers Association (TFA) which with its recent FBT 10+ campaign is advocating term lengths to be 10 years or longer.The TFA wants government to use tax incentives to encourage landlords to let for 10 years or more but the landowner association, the CLA, believes tinkering with agricultural property relief (APR) could return the tenanted sector to the 1980s when the maximum letting agreement would be less than 12 months, with any vacant land farmed in hand.

So what is the way forward? Land agent Eifion Bibby of Davis Meade Property Consultants says whilst the opportunity for security of tenure will no doubt be preferred by the majority there are alternative land use options that could be considered in certain circumstances.
Share farming may be a beneficial in some instances, being a contractual arrangement that involves commitment and risk on both sides. The farmer provides the land for the share partner to work, with profits apportioned on a pre-arranged basis.

“This is potentially an option for those, for instance, approaching retirement age to ease the burden of manual labour,” he said. “This might permit them to stay in the farmhouse but in the knowledge that someone else is doing the heavy work and paying a proportion of the bills.
The detail of a share farming contract is a matter for both parties but typically:
• the landowner provides the farmland and buildings, fixed equipment and his proficiency,
• the share farmer provides labour, field and mobile machinery and his expertise , with other costs such as seed, fertilisers and feed being shared.
• Ownership of animals can be shared, with each party being rewarded on a pro rata basis , and each producing his own accounts and being responsible for his own tax and VAT returns.

“If a share farming arrangement is properly structured and operated, with the landowner being treated as the farmer, the land will be eligible for business property relief (BPR) and APR for inheritance tax purposes,” Eifion said.”Also, the farmhouse will continue to be occupied for the purposes of agriculture.
“It is important, also that the contract is clear as to whom is the farmer for Basic Payment Scheme purposes as we have had significant concerns on certain templates observed of late,” he said.

Contract farming is another option. There are principally two types of contractor:
The first is the large company farming thousands of acres for different landowners. They will manage the enterprise and usually receive an extra payment depending on the profits made. The landowner receives all the tax benefits as if they farmed it themselves as they are taking the economic risk and are simply paying someone else to do the actual work.
The second type of contractor is often a farmer with surplus labour and machinery. He will farm a neighbour’s agricultural unit and get paid on an area basis for the work. Again there is frequently an additional payment dependent upon the net profits of the enterprise. Here the ‘landowner’ pays the ‘contractor’ to carry out the farming operations on the land. The landowner receives all of the proceeds of sale of the crop and is considered to be the farmer and is eligible for tax benefits such as inheritance tax reliefs.

“The downside is for the contractor who is not in occupation and is not regarded as farming the land,” Eifion explained. “This matters to a contractor who is a farmer himself as he will not be able to carry forward trading losses against his contracting profit. Share farming and contract farming offer little security for the contractor and hence the TFA does not view them as a way forward particularly in terms of offering those starting out in farming sustainability and opportunity to progress.”

Other alternative arrangements include Licence Agreements and Profits of Pasturage. A licence would normally be for less than a year and the farmer would be able to graze or mow the grass but not have any maintenance responsibilities. The owner claims the Direct and Rural Development Payments and retains APR and other tax advantages of farming the land. A Profit of Pasturage affords a similar opportunity to a Licence but on a different format.
“Agricultural land use arrangements are complicated and it is important to take professional advice before entering into any contractual obligation,” Eifion added.

For more information contact Eifion Bibby at Davies Meade Property Consultants on 01492 510360 or email eifionbibby@dmpcuk.com

Get Our E-Newsletter - breaking news to your in-box twice a week
Will be used in accordance with our Privacy Policy
Share.

About The Author