Use tax relief to boost farm productivity by £100m

Adopting an Irish model of Income Tax relief in the UK could boost farmland lettings and increase agricultural productivity by over £100m.

According to a review of data from the Irish Revenue by the Central Association of Agricultural Valuers (CAAV), the area of let land in Ireland rose to cover 7% of farmland in 2017, compared to just 2% in 2011. This followed an increase in Income Tax relief introduced in 2015 on farmland let for more than five years, explains Jeremy Moody, secretary and adviser to the CAAV. “This has had a profound effect on encouraging the letting of land and if adopted in the UK could be very beneficial.”

The increased relief starts at €18,000 (£16,000) per year for a five-to-seven-year tenancy, going up to €40,000 (£35,500) for 15-year leases.*

As a result, around 450,000 acres were newly let at arm’s length for more than five years from 2015 to 2017. “By the end of 2017 a country with no tenancy system for over a century had created 10,000 landlords,” says Mr Moody.

Initial modelling of the same relief for the UK suggests that if a further 4% of farmland in Great Britain and 15% in Northern Ireland were let in this way, the productivity gain could top £100m, explains Mr Moody. “Ireland has seen a higher proportion of farmland let for five years or more between 2015 and 2017 than England, Scotland and Wales have under all new forms of tenancy. Ireland now has 7% of its farmland let for such periods compared to about 5% in Great Britain under FBTs and limited duration tenancies, and none in Northern Ireland. There’s much greater potential for land to be let across the UK, it just needs the right encouragement.”

Increasing access to land for proficient farmers is one key to answering the UK’s agricultural productivity challenge, highlights Mr Moody. “Both Ireland and the UK have poor performance when it comes to agricultural productivity growth – averaging just 1% a year for many years. As shown in the Horizon** report, had we kept pace with the US since 2000, the contribution of UK farming to the rural economy would have been £4.3bn higher by 2013.

“If the UK had achieved this, it would have almost doubled the Total Income From Farming, which was £4.7bn in 2018,” he says.

Moving forward, land mobility should be an important component in achieving Defra’s targets to increase the growth of UK agriculture, adds Mr Moody. “The availability of land for productive and proficient farmers who will adopt new technologies and practices needs to be improved. Adopting an Income Tax relief policy similar to that of Ireland could be the key to making this happen.”

CAAV Review Paper: TAXATION, Agricultural Productivity and Land Occupation