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HMRC internal manual

Inheritance Tax Manual

Agricultural tenancies: The Agricultural Holdings (Scotland) Act 2003

Until 27 November 2003 agricultural tenancies in Scotland were regulated by the Agricultural Holdings (Scotland) Act 1991. The Inheritance Tax implications of this Act are set out at IHTM24230.

The Agricultural Holdings (Scotland) Act 2003 introduced two new types of tenancies applicable to leases of agricultural land commencing after 27 November 2003. The provisions of the 1991 Act can only apply to a lease of agricultural land entered into after 27 November 2003 if all the parties specifically agree in writing before it commences that the provisions of the 1991 act will apply to the tenancy.

The two types of tenancy introduced by the 2003 Act are

● Short Limited Duration Tenancies (SLDT).

● Limited Duration Tenancies (LDT).

Short Limited Duration Tenancies (SLDT)

 An SLDT can only be for a maximum of 5 years and after the agreed period of the lease has expired the tenant has no security of tenure. The tenant cannot assign the tenancy and the land and any buildings can only be used for agricultural purposes.

Limited Duration Tenancies (LDT)

An LDT must be for a minimum of 15 years and after the agreed period of the lease the tenant has no security of tenure.

The tenant may assign it (Agricultural Holdings (Scotland) Act 2003/S7). The Landlord has the right to object if ‘there are reasonable grounds’ for doing so (Agricultural Holdings (Scotland) Act 2003/S7 (3)).

The Tenant has the right to use the land for a non–agricultural purpose irrespective of any condition in the lease restricting the use to agriculture. However

● The Tenant must give advance written notice to the landlord

● The Landlord may object on the basis that the non–agricultural use would significantly lessen the amenity of the farm or surrounding area.

Agricultural Relief will not be available on any land or buildings not used for agricultural purposes.

Inheritance Tax Implications of the Agricultural Holdings (Scotland) Act 2003

Relief at 100% will be available on all tenancies created under the Agricultural Holdings (Scotland) Act 2003 as IHT84/S116(2)(c) states that 100% relief will apply if

’the interest of the transferor in the property does not carry either of the rights mentioned in paragraph (a) (that is the right to vacant possession or the right to obtain it within 12 months) above because the property is let on a tenancy beginning on or after 1 September 1995.’

The 2003 Act has been amended in the following legislation

● The Public Services Reform (Agricultural Holdings) (Scotland) Order 2011.

● The Agricultural Holdings (Amendment) (Scotland) Act 2012.

● The Agricultural Holdings (Scotland) 2003 Remedial Order 2014.

Any cases where the above legislation is in point should be referred to Technical.