Monitor Farm Contract Farming Q&A Guide to help with IHT option

Contract farming agreements could be one way of helping to navigate some of the complications introduced with the Government’s changes to Inheritance Tax.

Jack Frater, agricultural consultant at Edwin Thomson and who is featured in a 13-page Monitor Farm Scotland Q&A Guide to Contract Farming Agreements (CFAs), says they could be a useful option for farmers, and so there may be more opportunities for contractors.

The guide, aimed at helping farmers and contractors understand more about the opportunities and challenges involved with CFAs, was published following a Roxburghshire Monitor Farm panel evening featuring businesses who spoke about their experiences.

While CFAs are a very different approach from tenancies, they give both established contracting businesses and new entrants an opportunity to grow their enterprise, while still allowing farmers (the party with the land) to retain their land and business taxation status, and to be as involved in the business as they would like to be.

Jack, who chaired the meeting, says the subsequent change to IHT has focused people’s minds. “If anything, it has forced conversations that people have been putting off for a long time.

“CFAs are being talked about in this situation, especially if the next generation are not working within the business and are not necessarily looking to take the business on immediately. It means that the older generation can transfer the assets and take a step back but with the idea of keeping business going to ensure the relief remains, or is avoided by transferring over seven years.

“There are some issues that need to be factored in with this though, especially rules around the farmhouse. If the older generation are planning to hand the business over, they can’t then remain in the farmhouse as it can be seen as still benefitting from the asset. Therefore it is imperative that people speak to their accountant and advisor well in advance of making any decision to ensure they are not opening themselves up to further liability.”

The changes to IHT have had no impact on the structure of CFAs, but Jack adds that it has highlighted the importance of having the relevant documentation in place to protect the position of the landowner/farmer.

He is also optimistic about the growing availability of CFAs: “I do think there will be more opportunities for contractors going forward as more land is likely to become available in one form or another.”

Grace Reid, Monitor Farm Scotland programme manager adds: “Contract farming agreements have become an increasingly useful and important part of modern farming set ups. The Q&A Guide is a practical publication featuring people who have in-depth experience of setting up and operating CFAs. It’s helpful start for both farmers and contactors to get the ball rolling and is free to download.”

• The 13-page Q&A guide to Contract Farming Agreements is available to download on the Monitor Farm Scotland website: https://www.monitorfarms.co.uk/wp-content/uploads/2020/10/Contract-farming-QA.pdf