Tax considerations when assigning Scottish agricultural tenancies

Scottish tenant farmers who wish to retire or have no family successor may have the option of assigning their tenancy.

However, decisions around relinquishing or assigning a tenancy can have significant tax consequences, so must be considered carefully.

Legislation which came into force in 2021 allows the holder of a tenancy under the Agricultural Holdings (Scotland) Act 1991 to either relinquish their tenancy in return for compensation from the landlord or, if the landlord declines, assign the tenancy to a qualifying third party for value.

If relinquishing their tenancy, the tenant must first give notice to the landlord, who has the option to acquire the tenancy (to re-let or sell) in return for compensation.

If the landlord declines this opportunity, the tenant may then assign their tenancy to a qualifying third party, although the landlord still has the right to veto if they consider the new tenant not to have the appropriate farming skills or financial resources to take on the farm.

Whether you relinquish or assign your farm tenancy, there are a number of tax issues you will need to consider:

• Income Tax - Any sum received for trading stock (i.e. crops, livestock etc.) will be taxed as trading income, at your own rate of Income Tax.
• Capital Gains Tax (CGT) -  Compensation received is likely to be subject to CGT as it is treated as consideration for surrendering the lease. This may result in tax being charged at either 18% or 24% depending on individual circumstances. However, certain compensation payments, including those for qualifying tenant improvements to the holding, may fall outside the scope of CGT. Similarly, relief may also be available where part of the compensation relates to a farmhouse that has been the tenant’s main residence.
• Business Asset Disposal Relief (BADR) BADR may be available to reduce the rate of CGT potentially payable on a qualifying disposal. However, it is not available on all disposals of business assets, so planning and advice are important. In April 2026 the BADR rate also increased to 18%, reducing the benefit compared with previous years, but still effective if otherwise paying CGT at 24%.

While the focus here is on tax, it is also important to seek legal advice to navigate through the intricacies of the legislation.