March 21, 2019


With the future of farming and subsidies changing post Brexit we are likely to see an increase in the variety of business structures used to manage the farming business, particularly involving third parties. Historically farming businesses have been run as partnerships and limited companies usually owned by family members. Where one generation wishes to retire with no successor and, usually for tax as well as sentimental reasons, wishes to retain ownership of the farm, it is often rented to a neighbour under a farm business tenancy. However, there are alternative arrangements that can be used and we expect to see more use of these post Brexit. These include:

Grass keep or Profit of pasturage

This involves an arrangement between the landowner and a third party where the landowner grows the grass and a third party brings livestock onto the land to graze or takes a cut of grass for hay or silage.

Contract farming

A contract farming arrangement is often used on arable land as well as dairy farms where the landowner wishes to remain farming but does not wish to carry out the day to day farm work. The landowner is responsible for the key decisions and the farm plan whilst the contractor will carry out the operations under the farm plan on behalf of the landowner.

Share farming

This is where two farmers agree to work together to share farm the land. They remain independent (they are not in partnership together) and often one farmer provides the land and buildings as well as fixed equipment whilst the other farmer provides the machinery and labour. Arrangements such as these can provide many benefits including the pooling and bringing together of resources, experience and skills to provide economies of scale and a profitable business for both parties. They can also provide a great opportunity for new entrants to come into the sector. In addition, managed well, there are many tax benefits for the landowner. Retaining farming status allows the landowner to deduct various expenses against the income, and to claim the VAT back. The farm will qualify for capital gains tax (CGT) rollover, holdover and entrepreneurs’ relief, reducing the CGT payable on a later sale or gift. For inheritance tax purposes the landowner may still be in agricultural occupation of the farmhouse so agricultural property relief could be claimed on death and business property relief may also be available for any non-agricultural value, such as land with hope value or a rental property. To ensure farming status is protected the landowner must be in occupation of the land and the occupation must be for the purposes of husbandry. In case law, the courts have been prepared to accept the landowner as the person with the primary use provided he conducts some activities on the land which are husbandry. For example, a grazing license should provide that the landowner is responsible for growing the crop of grass and the landowner should actively perform some activity on the land. This should include fertilising, seeding, and controlling weeds on the land. Mere acts of maintenance, such as hedge cutting, would not be treated as husbandry. To be farming it is also important that there is always some business risk for the landowner. A guaranteed income every year would not give such risk. Often share farming and contract farming arrangements are set up with a guaranteed return for the landowner with all input costs and activities carried out by the share/contract farmer. In addition the crop is often sold to the share/ contract farmer. Such arrangements are at risk of failing an enquiry with H M Revenue and Customs. Therefore, if farming status is required, to protect tax relief, advice should be sought. Keeping evidence of the activities performed is vital. A diary should be kept recording meetings and conversations held with the third parties as well as meeting notes where the landowner has directed for certain activities to be carried out. Proper invoicing from the supplier of inputs is also crucial. With the basic payment scheme being replaced by a new system for ‘public goods’ many farming businesses will need to adapt. The future receipt of direct payments may also be delinked so may no longer be contingent on continuing to farm or meeting cross compliance requirements. As a result there may be opportunities for some landowners to reassess their future. In some cases this may result in wholesale retirement. However, in the short term, more likely we will see a rise in the use of alternative farming arrangements and business structures. As always it is important to take professional advice early on. If you would like to have a conversation about any of the above, please feel free to get in contact with the Agricultural team.


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