Publication - Research and analysis
Impact of diversity of ownership scale on social, economic and environmental outcomes
Report on the impact of diversity of ownership on the socioeconomic outcomes for rural areas.
Appendix 5 - Land ownership scale factors
Table 14 Factors influencing scale of land ownership
| Factor | Effect on Ownership Scale |
|---|---|
| Inheritance Tax / Death Duties | Death duties led to the sale of land holdings with many ending up fragmented in the first half of the 20 th century. Some neighbouring landowners may have used the opportunity to expand their existing holding. |
| Inheritance Tax Agricultural / Forestry Relief | Inheritance tax relief can limit the need for some owners to sell land / buildings (fragmentation) to pay tax dues. |
| Capital Gains Tax | Capital gains tax can reduce the gain from development sales that may reduce capital from reinvestment into land and buildings. Capital gains tax can reduce land value inflation from roll over relief. |
| Capital Gains Tax Rollover Relief | This means more capital gain is available for reinvestment into agriculture / forestry that can increase scale of ownership and can lead to land value inflation. |
| Income tax relief including Sideways Tax Relief | The Income Tax treatment of forestry until 1988 allowed owners effectively to switch between two bases of taxation. 'Schedule B' was most advantageous when woodland was generating revenue from timber sales as it taxed woodland income on the basis of modest annual values, whereas 'Schedule D' was more advantageous during periods of expenditure because it allowed claims for loss relief on planting and other management expenditure. The resulting losses could be set off against any other income (loss relief). This led to significant investment into forestry land purchase and plantation during the 1980s. Sideways tax relief also provides opportunity to offset profits made elsewhere against losses in agriculture (or vice versa) providing farm made profit in last 5 years |
| Interest rates / Alternative Investment Yields | Mid 1980s saw very high interest rates. High interest rates can restrict those borrowing money to enter the land market - especially new entrants, tenants, etc. In recent years land and estates have been marketed to investors as being high yielding assets and investors' access to large amounts of capital may have reduced the fragmentation of land holdings through the investment in whole units |
| Common Agricultural Policy support ( PI) | CAP payments are capitalised into land values. This means land becomes expensive and acts as a barrier to entry for non-land holders. There is a limited pool of people able to benefit from the CAP meaning there is likely to be a more limited demand for larger land areas being sold. Years of CAP receipts allow existing CAP recipients to out-bid many non- CAP recipients in purchase of and particularly if they aim to expand in order to benefit from economies of scale / scope or to provide a start in farming for children. |
| Forestry | Forestry grants have been in existence for considerable time and some planting grants have been particularly attractive. Large scale plantings / re-plantings can be easier to co-ordinate, have lower per unit cost / and yield greater climate change benefits. Forestry Commission purchases of land led to some fragmentation of land holdings over time (mostly pre-1970s). |
| Succession | Scottish succession laws do not require land to be equally split between siblings as per the Napoleonic Code and heritable and moveable property are treated differently under law (this means that if land is left under bequeath to an individual others have no claim on that yet children and spouses have a legal right to the moveable assets. Until 1964 Succession Act the law of primogeniture held and entailment (abolished fully through the Abolition of Feudal Tenure (Scotland) Act 2000) made sure landed holdings were safeguarded from fragmentation in situations of bankruptcy, insanity, etc |
| Divorce | Improved divorce settlement has meant there is greater likelihood of sale of asset, and fragmentation, in cases of divorce. |
| Gift | Gifts to family members can lead to fragmentation as parcels of land holding are split off |
| Debts | Landed holdings may be sold to pay financial debts. In order to pay Lloyds insurance losses in the 1980s and 1990s many 'Names' had to sell off landed holdings to cover their share of payments (e.g. Lord Kimball sold the 19,000 hectare Altnaharra estate). Thus external debts can lead to sales of land and fragmentation. |
| Lotting of land holdings | Land agents will often suggest the sale of land in 'lots' to maximise potential sale value to the owner (particularly accessible / better quality holdings). By doing so sellers can access a much wider range of purchasers who may be willing under the Scottish system to bid-up the value of the "lot" depending on their interest in it. On more sporting type properties / poorer land capability the holding may be sold in its entirety as there is greater value as a whole (maintain scale). Some owners are insistent that their land be marketed as a whole unit due to sentiment. Existing owner motivations / sentiment play an important role during the sale of land. |
Contact
Email: Graeme Beale, socialresearch@gov.scot
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