At the annual conference of the Agricultural Law Association in February, we heard a variety of extremely interesting speakers, all of whom gave rise to the consideration of what the combination of the recent changes to Agricultural Holding Act tenancy succession rules and the Government’s plans for the changes to Inheritance Tax might mean for tenanted farms.
Let’s take the alterations to AHA succession rules first, of which there are two key changes. Firstly, the Commercial Unit Test has been abolished by the Agriculture Act 2020. This means that an applicant is no longer prohibited from applying for succession whilst holding another commercial agricultural unit, thereby encouraging forward thinking and ambitious young farmers. Secondly, and probably more importantly, are the changes to the Suitability Test which has seen significant amendment in the Act. Applicants will now need to provide specific evidence of suitability (including business plans, examples of relevant agricultural training and experience and other information) and will need to demonstrate that they would have been amongst those short-listed had the tenancy gone to tender. In essence, the Act has ‘widened the gate but raised the bar’.
Now let’s look at Inheritance Tax. There has been a shift over the past ten years for larger Estates to take farms back in hand at the end of a tenancy. Historically, and very broadly speaking, this would not potentially cause concerns from an IHT perspective taking into account Agricultural Property Relief (APR) and Business Property Relief (BPR). In the new scenario, with the proposed changes to relief (important to note that this is still not law), the Estate could potentially attract considerable IHT liabilities in the future.
So, if we combine the new succession rules (where we are likely to see a better calibre of AHA tenant and give fresh opportunities to new entrants) and the new proposed IHT rules (where the reliefs are slashed) will the net result be that Estates elect to let out farms to reduce their book value in an attempt to mitigate IHT liability? I think this is going to be an interesting one and, if I am right, might be a very small silver lining in otherwise black clouds.