As the UK pushes towards its target of carbon net zero by 2050, the number of solar farms being developed is increasing exponentially year on year.
With rents as high as £1,000 per acre, having one on your land can seem like an extremely attractive proposition for farmers.
However, care needs to be taken when considering such a move, particularly in relation to the future of the farm. Solar farms are not considered an agricultural use of land. As a result, there are some significant tax implications of developing one as part of your enterprise.
Grazing small livestock
One confusion around solar farms is that fact farmers can continue to graze small livestock such as sheep around solar panels. Many think this means the land automatically retains is status of being in agricultural use.
However, this isn’t the case and even by grazing livestock, farmers won’t necessarily retain Inheritance Tax relief via the Agricultural Property Relief because of the impact of the solar rent on overall farm income.
Given that solar farms are proposed for a minimum of 35 – 40 years and in all likelihood will be replaced and retained after that, this is a serious consideration.
Ian Parker, director of Whitley Stimpson and an agricultural accountancy expert, advised farmers to tread lightly when it comes to considering giving over land to a solar farm development.
“Farmers need to be careful because the rental income from solar panels is not an agricultural activity and so the value of the contract would not be covered by APR for IHT purposes. It may be covered by Business Property Relief (BPR) but this must be constantly monitored to ensure that the rental income does not become more than 50 per cent of overall income in the farm. If this happens, it would be considered passive letting/rentals income rather than trading which could lead to the loss of tax relief. As Basic Payments reduce further over coming years, this will become a major consideration for many farmers.”
The article is covered in our Agricultural Spotlight – click the link to read the full magazine, which keeps farmers up to date with the latest accounting changes and challenges.