There have been many proposals for capital tax reform over the years. Some of the ideas currently circulating, which may well be introduced at some point in the future, include:
- introducing some form of wealth tax, which could cause problems for rural businesses where wealth is tied up in illiquid assets;
- removing the capital gains tax base cost rebasing on death if inheritance tax agricultural or business property reliefs are claimed; and
- tightening the conditions for business property relief to require qualifying activities to be at least 80 per cent of total activity (the current test requires an interest of more than 50 per cent), impacting property-rich, diversified rural businesses.
A recent parliamentary debate covering rural landlords and tenancy reform cited the Tenant Farmers Association’s suggested changes to the taxation of farming and related activities. These include the restriction of 100 per cent agricultural property relief to those letting land on farm business tenancies for more than 10 years, and restricting business reliefs where landowners use share farming, contract farming, share partnerships and grazing licences as farming arrangements.
Many rural businesses enter into these arrangements for personal and commercial reasons and not just for the tax benefits. For example, the landowner contributes the land, but it may not be beneficial investing in the increasingly sophisticated farm machinery which a contractor can deploy across multiple contracts. These arrangements allow wider participation in the land and contribute to a stable environment. The relationship between landowner and tenant is important to maintain and requires very careful thought before any changes are made, particularly in this post-Brexit era of uncertainty.
Changes to the tax regime could become detrimental to tenants, encouraging landlords to bring more land directly in hand to retain flexibility for themselves and their families. Given the value tied up in land, tax reliefs are increasingly essential to enable businesses and business assets to be passed to the next generation intact, maintaining stability for all who rely on the land and rural landscape.