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HMRC internal manual

Inheritance Tax Manual

Agricultural purposes: Set-aside scheme

‘Set-aside’ is a scheme designed to reduce the production of arable crops. It was introduced in 1988. Farmers in the scheme agree to set-aside (that is to stop using for any kind of agricultural production) a percentage (originally at least 20%) of the land they have been using for growing agricultural crops. In return they receive annual compensation payments.

Set-aside was suspended for 2008 and any case in which this becomes relevant should be referred for advice. Land set-aside has to be used for one of the following options, or any combination of them

  • Permanent fallow or rotational fallow. Permanent fallow commits the farmer to setting aside the same parcel(s) of land for the full period of the agreement. Rotational fallow enables the farmer to set aside different parcels of land each year as part of the normal arable rotation. There are detailed rules for the management of the fallow land to ensure that it is kept in good agricultural condition.
  • Woodland. Forestry Commission approval is normally required. Until that approval is obtained, the land may be maintained as fallow.
  • Approved non-agricultural use. These uses include tourist facilities, caravan and camping sites, car parks, certain sport facilities, riding schools, livery stables and game and nature reserves. All normal planning laws apply. Until planning permission is obtained, the land has to be maintained and managed as fallow.

If the rules are broken by either the original farmer or a successor in title, penalties may be imposed, including the repayment of amounts already received.

You can accept that arable land set-aside to permanent or rotational fallow is both

  • agricultural property (IHTM24030) within the meaning of sIHTA84/S115 (2), and
  • occupied for the purposes of agriculture within the meaning of IHTA84/S117 during the currency of the set-aside agreement relating to that land. This ruling does not apply to land set-aside for any other purpose.

Agricultural relief is also available for land subject to undertakings under the Set-Aside Access (Scotland) Regulations SI1994/3085.

The availability of agricultural relief and/or business relief for land set-aside for woodland or non-agricultural use depends on the merits of the individual case.

In 2008 the EU agreed to suspend the Set-aside Scheme by setting a 0% rate of compulsory set-aside for the 2008 scheme year. This meant that farmers could crop the former set-aside land with crops or livestock without having to meet the set-aside scheme management requirements, and were paid the set-aside flat rate payment.

Claimants were still able on a voluntary basis to leave set-aside land uncropped and received the same flat rate payment, although it was obviously in their financial interests to crop the land. This resulted in record harvest figures for 2008.

In May 2008 the EU, as part of its ‘health check’ proposal planned to abolish compulsory set aside as from 2009 onwards. Under the proposal, farmers would not be obliged to set aside land from production in order to be entitled to the set-aside payment. The set aside entitlements will be turned into normal entitlements from 2009.

Concerns about the loss of environmental benefits provided by the set-aside scheme are to be addressed by requiring arable farmers to manage a small percentage of their land primarily for environmental purposes. Proposals are still being worked up and implementation for this aspect will not be possible until the 2009/10 cropping year.