Tenancy vs Conacre: ‘Don’t let the tax tail wag the dog’

Land owners have been warned not to let tax myths shape their business decisions and that longer-term leases, as opposed to conacre, could actually allow their land to be better managed.

Kate Russell – from the Central Association of Agricultural Valuers – advised landowners at an Ulster Farmers’ Union meeting in Co. Down to consider longer-term leases as an investment in the quality of their land.

She said: “It came out in the Sustainable Agricultural Land Management Strategy that this short-term use of conacre was holding back productivity of land in Northern Ireland.

‘No incentive to invest with conacre’

“One-season leases means there’s really not very much incentive for the farmer farming that land to do anything with it.

“If you’ve only got certainty that you’ve got the land for this season, why on earth would you go to the risk and expense of putting lime on it when you’re only going to get one season out of it?

You want to have that land for three – maybe five – years to get that return on the investment. And what’s frustrating in many ways is that you probably are going to have that land for three or five years – you are probably going to have it for 10 or longer, because you have a relationship with the owner of the land.

“You trust him, he trusts you; but, there is no guarantee protecting that investment. So the lacking of investment has been holding back our land.”

Flexibility in leases

Russell explained that in Northern Ireland there was more flexibility surrounding leases compared to in other parts of the UK.

She said: “In England, Wales and Scotland we’ve got a very detailed statutory framework – there’s legislation detailing what landlords must do and what tenants must do.

Kate Russell
Kate Russell

“You’ve got none of that clutter over here – you’ve got freedom of contract to decide what you agree to; how long for; and the terms you want.

“This can tie in really nicely with the environmental schemes we have been talking about lately. If you are looking at a five-year scheme you want a five-year agreement to go with the five-year scheme – otherwise, it’s not going to work.

“Tenancies can work very well with the different income opportunities that this new scheme may be able to offer some people.

If an occupier has a little bit more security, there is more opportunity for them to invest and to take the land forward and stop it going backward. At the end of the day, everyone wants to see their land performing at the best it can.

Tax relief

Russell explained that inheritance tax benefits were not affected if the land was let on a longer-term basis – a common misconception in the industry.

She said: “The tax situation for conacre and tenancy is exactly the same. There is no disadvantage to letting on a longer-term tenancy.”

She added that in the future, longer-term leases were an area which could potentially attract tax reliefs.

She suggested that a practical way for farmers to approach a tenancy was to ask the landowner if you could agree for two years instead of one, the next time conacre was agreed.