Scottish Tenant Farmers Association

News Release

2nd August 2017



The Scottish Tenant Farmers Association is calling upon the Scottish Government to exempt agricultural tenancies from a new land tax which will penalise new entrants by levying a tax on new lettings and the assignation of existing tenancies.

Research conducted on behalf of STFA has confirmed that one of the unintended and little understood consequences of the Land and Business Transaction Tax (LBTT) is the impact it will have on the agricultural letting market. LBTT was introduced in April 2015 to replace Stamp Duty Land Tax with a simpler and fairer way of levying tax on property sales and other transactions.

It is the tenant’s responsibility to make an LBTT return if the lease period is for more than 7 years, or if the tenant ‘buys’ the lease for more than £40,000; and/or where the rent is of a high enough level to bring it within the LBTT threshold for leases (£150,000).

Commenting on the news, STFA Chairman Christopher Nicholson said: “The impact of this land tax on the tenanted sector has only just become apparent now that LBTT is in operation.   The new tax regime affects leases granted after 1st April 2015, usually 10 year minimum Limited Duration Tenancies, but a 1991 lease being re-granted for tax purposes will also be liable. So tenants should be wary of a landlord’s request for a new 1991 lease to address his tax concerns.

“The new assignation proposals in the Land Reform Act for 1991 tenancies may also be affected. As it stands, it is possible that an assignation for value will trigger an LBTT liability. The incoming tenant is, ultimately, paying for an interest in land and therefore, a notification to Revenue Scotland seems likely to be required if the consideration for the assignation is above the £40,000 threshold. He would then be responsible for the return and the LBTT liability and thereafter the three-year returns. We have already seen the assignation of a 1991 tenancy take place where the incoming tenant’s purchase price for the lease is greater than the £150,00 threshold and he faces a tax liability on top of the price he has paid for his new tenancy.

“Tenants taking on a long-term LDT will find themselves in even greater difficulty as they will be faced with being taxed on the accumulated rent over the period of the lease. For example, a 20 year lease of a 400ac 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. Rent rises over the period of the lease could give rise to subsequent tax demands.

“This amounts to penal treatment of the let sector and is obviously not what was originally intended. It flies in the race of government policy to encourage longer-term tenancies and the transfer of existing tenancies to new entrants and developing farmers. STFA has already brought this to the attention of the Scottish government and will be seeking the support of fellow stakeholders 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 accidentally killed this prospect dead in the water.