What the UK let sector can learn from Ireland tax reform

The UK’s tenanted sector and agricultural productivity could be improved by following lessons learned from Ireland’s tax reform, says the Central Association of Agricultural Valuers (CAAV).

Jeremy Moody, CAAV secretary and adviser, put forward the argument in his June 2021 report The Irish Republic’s use of income tax relief to promote the letting of farmland: the first five years’ experience.

In 2015, Ireland began offering income tax relief to those letting land for at least five years, with the aim to move land into the hands of the proficient and enable a longer-term view for land management and productivity.

See also: 7 things we know about the 2021 farmland market

From a “near standing start”, the policy brought almost 8% more farmland into the rented sector within four years.

Unlocking more opportunities for the right farmers – particularly young farmers and new entrants – can only benefit a sector that struggles with productivity and efficiency, says Mr Moody.

Ireland’s experience

With the tenancy system in Ireland dismantled over a century ago, owners had only made land available on seasonal arrangements (conacre), making land tenure a particular concern in the search for arrangements that will improve productivity, the report says.

Research undertaken as part of the Irish Agri-Taxation Review in 2014 suggested moving land into the hands of the trained saw an average improvement in production of 12%.

The Irish government then introduced substantial increases in the previously minor income tax relief on longer-term lettings.

The relief became:

  • Up to €18,000 (£15,400) a year for leases of five to seven years
  • Up to €22,500 (£19,000) a year for leases of seven to 10 years
  • Up to €30,000 (£25,000) a year for leases of 10 to 15 years
  • Up to €40,000 (£34,000) a year for leases over 15 years (a new category).

In the four years to 2018 (the most recent data available), the results were:

  • Area let for five years up from 2% to almost 8%
  • About 560,000 acres newly let
  • 5,500 new landlords.

“In four years, Ireland has achieved more of its farmland on new five-plus year lets than Great Britain,” says Mr Moody.

“This enhanced relief has seen new, accelerated and sustained change in the occupation of farmland by encouraging both farmers to see retiring and letting land as a positive option and owners who have been using only seasonal arrangements to let for longer terms to the benefit of the land’s management.”

What about the UK?

This evidence points to a similar tax relief measure being adopted in the UK for the same reasons, promoting the voluntary transfer of farmland by letting to those who will use it proficiently, says Mr Moody.

Increasing the number of opportunities generally means increasing the number of opportunities for new entrants and young farmers specifically to progress and build the businesses of the future.

Initial modelling for the UK suggests that an increase in five-year-plus lettings in Great Britain of 4% and Northern Ireland of 15% could result in a productivity gain of more than £100m, according to Mr Moody.

“Such a tax relief opening up the land occupation market in the UK could have a potent and positive role in having the flexibility to handle the changes and challenges likely to be seen following Brexit, with such a change in occupation being consistent with unlocking the potential for significant productivity growth,” he says.

Potential challenges for UK

  • Differing farm structures to Ireland
  • Such a change could simply see current arrangements, such as contract farming, restructured to secure the relief
  • Ireland has made this change from a standing start – the easiest gains are perhaps the earliest gains

Report conclusions

  • The Irish model does stand further scrutiny for use in the UK
  • While primarily focused on smaller ownerships, such a relief has the capacity to effect a wider change in mindset across farming
  •  It offers a direct answer to the key question for improving farming productivity – the “who” of farming – opening up the land market for the right people to farm it
  • The discussion on this topic also showed the general need for promoting:
    – Wider knowledge and awareness of the possible arrangements and
    – The taking of advice on them with proper identification and testing