The Tenant Farmers Association (TFA) has welcomed the open dialogue it has had with Ministers and senior civil servants within the Treasury and DEFRA following the announcements made on Inheritance Tax as part of the 30 October Budget statement, however, it now believes it is time for decisions to be made about the way forward.

TFA National Chair, Robert Martin, said "Whilst the dialogue with the Treasury since 30 October has been good, it is frustrating that there was little or no engagement leading up to the Budget and that was not for want of the TFA trying to secure that engagement. Whilst it is appreciated that the Chancellor and her Treasury team will have had a significant number of calls from organisations wanting to meet them, given the plans that were being made within the Treasury, no doubt for some weeks or months, to make changes to APR and BPR in a farming context, you would have thought that that the TFA would have been one of the organisations consulted in advance given the huge implications for our members and the wider tenanted sector of agriculture. We are well used to having such conversations confidentially behind closed doors on a pre-announced basis but having to have those conversations post announcement is hugely problematic for us all".

In the TFA's response to the Budget statement it said it understood and agreed with the premise that it was unfair that wealthy individuals were able to enter the land market, having made capital gains in other parts of the economy, to hide their wealth from tax. However, the TFA has also been very clear that in choosing to focus on Inheritance Tax, the Chancellor has pulled the wrong lever.

"To quash the incentive for wealthy individuals to purchase land in a way to avoid tax it would have been better to have abolished Capital Gains Tax (CGT) rollover relief – something which the TFA had suggested in its submission made in advance of the budget. In fact, having increased the rate of CGT in the Budget and with the Inheritance Tax provisions on business and agricultural assets now to be charged at 50% of the normal rate, my fear is that the Government will have increased the incentive for new money to come into the land market from capital gains made elsewhere. However, at the same time, the Government has left a huge problem for old money landlords who have traditionally let their land to hard-working tenant farmers," said Mr Martin.

"I am quite sure that when she prepared her Budget statement and delivered it to the House of Commons on Wednesday 30 October, the Chancellor thought that she would be putting in place a measure that would protect from tax many hard-working family farms. However, unfortunately, the Chancellor was focused only on those who were owner occupiers of their farms and did not appreciate the impact of her measures on hard-working family tenant farmers who, whilst not directly impacted, are certainly hugely impacted indirectly," said Mr Martin.

Around 30% of the agricultural land of England and Wales is farmed under some form of tenancy agreement. Half of that area is rented under secure agreements regulated by the Agricultural Holdings Act 1986 and the remaining half is let under Farm Business Tenancies (FBTs), regulated by the Agricultural Tenancies Act 1995. These FBT agreements are characterised by short lengths of term. The current average length of term on these agreements is 3.66 years and nearly 85% of all new tenancies are let for 5 years or less.

"In response to the announced changes to Inheritance Tax, we are already seeing the advisory industry, which surrounds the landlord community, step into gear by promoting the need for estates to look at restructuring their position to maximise their ability to avoid tax. With the landlord community being considerably risk averse, we are anticipating many situations where private landlords will be seeking to bring back into hand land currently let under short-term FBT agreements. This will provide them with options for wealth management or to raise the funds necessary to pay any expected tax bill. We could see many FBT agreements being ended and many tenancy agreements that should have been offered being pulled from the market," said Mr Martin.

In addition, the TFA is also receiving reports that landlords are looking to scale back investment in buildings and fixed equipment on let holdings for fear of increasing their value and their exposure to tax.

"We need the Government to make an urgent statement which, whilst not undermining the overall policy mechanism, expresses the understanding of the unintended consequences for privately let tenant farms and the livelihood of those who farm those holdings. We need to hear that these concerns will be taken into consideration in drafting the forthcoming legislation. Such a commitment would alleviate the current pressure for let estates to restructure now in advance of any forthcoming legislation," said Mr Martin.

The TFA has put forward a reasonable mechanism for the Government to use to ensure family tenant farming businesses are protected. That is to allow landlords to add into the zero-rate band for inheritance tax the value of any agricultural land let to tenant farmers on secure tenancy agreements let under the Agricultural Holdings Act 1986, or FBT agreements let for 10 years or more, without scheduled, unconditional break clauses. In addition, land let for crops usually grown in short rotation could also be included within the zero rate band. However, the new tax charge would continue to apply to those estates letting land outside those parameters.

"Incentivising longer term farm tenancy agreements would also sit well with wider Government policy on rural economic growth, farm resilience, food security and the provision of public goods, including in respect of environmental management and carbon sequestration and storage," said Mr Martin.

In addition, the TFA believes that there are two other sensible changes that should be made in order to finesse the impact of the proposed changes on agricultural businesses more widely. Firstly, the combined APR/BPR zero rate band should be set at to £2 million and secondly, that allowance should be transferable between spouses and civil partners to provide an overall limit of £5 million rather than the £3 million currently suggested.

"If the Government could find its way to making these sensible changes to what it has announced already, it should provide farm businesses utilising owned and rented land and those estates offering tenancy opportunities a reasonable and fair basis to adequately plan their financial and succession affairs going forward," said Mr Martin.