Effective 1 June, we have a new address: 34 Imperial Square, Cheltenham, Gloucestershire GL50 1QZ
Get in Touch Menu

Inheritance tax and solar development

27 April 2015

Where land is leased to a solar power operator, it no longer qualifies for agricultural property relief so could be subject to inheritance tax of up to 40%.

With farm incomes under such pressure, attractive deals are available for solar developments, so it is not surprising that some farmers would prefer to lease the land and accept a regular rent, but they must be aware of the fiscal implications of doing so.

Typical rents for solar panels are about £1,000 per acre index linked for 20 years. As a rental activity rather than a trade, farmers are obliged to treat this income separately. Although a lease rent of £1,000 per acre may be attractive, farmers must take account of the full picture. The potential inheritance tax levy could be as much as 40% on the value of the land rented out, so farmers should ask themselves if the potential IHT exposure is worth the rental income.

Some farmers believe that by grazing sheep under the solar panels they can retain the agricultural property relief. However, this simply isn’t the case. You have to remember that the occupant of the land under a long lease will be the tenant, ie the solar company, not the farmer; therefore the primary use of the land is not farming.

Although the Balfour Court case may help to preserve IHT relief, farmers should not rely on it. Balfour does not provide a general relief for all farming businesses that incorporate non-trading income as part of their business return and is certainly not robust enough to guarantee IHT relief on solar assets.

Even were Balfour to apply, BPR may only be available at a rate of 50% of the value of the asset rather than the full 100%. This is particularly the case where the land is owned by an individual but leased to a farming partnership or limited company.

To mitigate the risk, farmers could consider taking out a life insurance policy to cover any potential IHT liability for the duration of the lease.

We're here to help

Adam Hale BA (Hons), TEP, FALA
View profile
Adam Hale
Related services
Share this article
Resources to help

Related articles

We welcome new senior associate to our agricultural team

Agriculture & rural affairs

We are delighted to welcome senior associate Adam Hale to our agriculture & estates team this month. Adam, a specialist in agricultural law, estate planning and estate administration, joins the…


Prescriptive rights – whose land is it anyway?

Agriculture & rural affairs

For prescriptive rights to arise over land, they have to have been exercised without force, secrecy or permission of the landowner. Winterburn v Bennet In the case of Winterburn v Bennett, the…

Robin Beckley MA (Oxon)
Consultant, solicitor

Private vs common land - use it or lose it

Agriculture & rural affairs

The High Court decision in Lancashire County Council v The Secretary of State for Environment is a salutary warning to landowners of the risks of not taking steps to prevent…

Robin Beckley MA (Oxon)
Consultant, solicitor
Contact us