The Scottish Tenant Farmers Association (STFA) is calling upon the Scottish Government to exempt agricultural tenancies from a new land tax which will penalise new entrants by levying a tax on new lettings and the assignation of existing tenancies.

One of the unintended and little understood consequences of the Land and Business Transaction Tax (LBTT) is the impact it will have on the agricultural letting market and the assignation of 1991 tenancies. LBTT was introduced in April 2015 to replace Stamp Duty Land Tax with a simpler and fairer way of levying tax on property sales and other transactions.

It is the tenant's responsibility to make regular LBTT returns if the lease period is for more than 7 years, or if the tenant "buys" the lease for more than £40,000 - and/or where the accumulated future rent payments (net present value of rental stream) is of a high enough level to bring it within the LBTT threshold for leases (£150,000).

STFA Chairman Christopher Nicholson commented: "The impact of this land tax on the tenanted sector has only just become apparent now that LBTT is in operation. The new tax regime typically affects leases granted after 1st April 2015, usually 10 year minimum Limited Duration Tenancies (LDTs), but a 1991 lease being re-granted for tax purposes will also be liable. So tenants should be wary of a landlord's request for a new 1991 lease to address his tax concerns.

"The new assignation proposals in the Land Reform Act for 1991 tenancies may also be affected. As it stands, it is possible that an assignation for value will trigger an LBTT liability. The incoming tenant is, ultimately, paying for an interest in land and therefore, a notification to Revenue Scotland seems likely to be required if the consideration for the assignation is above the £40,000 threshold. He would then be responsible for the return and the LBTT liability and thereafter the three-year returns."

Mr Nicholson went on: "Tenants taking on a long-term LDT will find themselves in even greater difficulty as they will be faced with being taxed on the accumulated rent over the period of the lease. For example, a 20 year lease of a 400 acre farm with an annual rent of £15,000 would create rental payments over the 20 year period of £300,000 giving rise to a tax bill of over £4,000 to be paid at the start of the lease. Rent rises over the period of the lease could give rise to subsequent tax demands."

Market round-up

Wallets Marts sold 1112 prime lambs in Castle Douglas on Tuesday to average £82.30 per head or 197p per kg (+26.3p on the week).