Beware the tax man when removing land from an Agricultural Holdings Act Tenancy, writes Paul Burkinshaw, Partner at Harrowells Solicitors.

Historically, the rights relating to the security of tenure and succession under the 1986 Agricultural Holdings Act (AHA) were so onerous that most landlords chose to let their land via licences; although a number of these were converted into AHA tenancies. Unfortunately, licences did not offer tenants the long-term certainty required to establish a farming business.

Although the creation of Farming Business Tenancies (FBT) in 1995 has redressed that problem somewhat, many AHA tenancies continue to exist, largely because the security of tenure and succession rights enjoyed under the 1986 Act makes their termination difficult.

The grounds upon which an AHA tenancy may be terminated are complicated. The burden is on the landlord to ensure he can comply with those grounds specified in the 1986 Act.

Changes in farm support and the march of development mean that the number of tenants leaving land subject to an AHA will increase. One of the most common ways in which a landlord can take back land subject to an AHA tenancy is if they have planning permission for a non-agricultural use on that land. However, whatever the reason for quitting may be, reach for the accountant quickly!

Capital gains tax (CGT) is the main risk, and the timing of notices and negotiations is crucial.

In general terms, if the landlord serves a notice to quit the tenant will not have to pay capital gains tax on the compensation for surrender. However, this is not necessarily the case if the tenant voluntarily surrenders the land unless the consideration is clearly for the compensation element arising under the Agricultural Holdings Act 1986. Tenants should be alive to these issues and carefully consider their position. Never simple hand the keys back

Surrender payments made following a commercial negotiation between landlord and tenant, such as where the tenant agrees to leave for another reason, will be subject to CGT.

Whilst generally the surrender will be agreeable, never commence negotiations for surrender prior to a notice being served or without having taken advice. The taxman is always waiting with his hand out if things are dealt with incorrectly. There is a time and place to take proper advice. This is one of them!