Tax on Farm Diversification
Written and reviewed by the Agricultural Accountants editorial team. Last reviewed 27 July 2026.
Few farms live on farming alone any more. Holiday cottages, a farm shop, weddings, glamping, solar and wind all bring income, and each brings its own tax treatment. Two of them also carry a risk to the inheritance-tax reliefs that most farmers do not see coming.
The recent changes made some of this worse, so a diversification that worked on the old rules may need looking at again.
Holiday Cottages After the FHL Abolition
The furnished holiday lettings regime was abolished from 6 April 2025, and farm holiday cottages lost with it: full mortgage-interest relief, the holiday-let capital allowances, and the trade-style capital gains reliefs. HMRC confirms the regime ceased in its property income manual. A cottage that was a tax-efficient holiday let is now an ordinary property business.
Whether it is rated as a business or falls to council tax is a separate question: in England a self-catering property must be available to let 140 nights and actually let 70 to be business-rated, per the GOV.UK guidance. Miss the nights and it moves to council tax.
Farm Shops and Mixed VAT
A farm shop is a VAT headache because it makes mixed supplies. Most food for human consumption is zero-rated, but confectionery, crisps, soft drinks, hot food and any non-food goods are standard-rated, so the till has to apportion. Get the mix wrong and either you overpay VAT or you build up a problem for an inspection.
It is ordinary work to set up correctly, but it is easy to run for years on a rough split that does not stand up. The shop also sits inside the wider farm business for income tax, not as a separate thing.
Where Diversifying Risks the Relief
The quiet danger is inheritance tax. Letting land to a solar or wind developer, or holding an investment property in the farm, is generally treated as investment rather than trading, which can reduce or lose Business Property Relief on that part and, for let land, take it outside Agricultural Property Relief too. This is professional experience rather than a single GOV.UK rule, so it is exactly the kind of thing to take advice on before signing a lease. Our guide to Business Property Relief explains the excepted-assets point, and the planning sits in our succession service.
The lesson is that a diversification decision is also an inheritance-tax decision, and the two are best made together rather than years apart.