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Farm Diversification UK — Planning, FHL Abolition, IHT Agricultural Property Relief, and VAT

Farm diversification tax and planning guide — Class Q and QB prior approval; glamping and equestrian permitted development; FHL abolition from April 2025; IHT Agricultural Property Relief on diversified land; VAT option to tax on farm buildings.

14 min readUpdated 8 June 2026Last reviewed: 17 May 2026agriculturalfarm-diversificationclass-qfhl-abolition

Planning for Farm Diversification — Prior Approval and Permitted Development

Class Q (GPDO 2015 Part 3) permits conversion of agricultural buildings to dwellings (up to 5 per unit; 1,000 sq m total; 10-year prior agricultural use) subject to prior approval on transport, contamination, flooding, and design. The conversion must be just that — conversion not rebuild (Hirose Electrical UK Ltd v Secretary of State [2021]). Class QB (introduced 2024) allows agricultural buildings to change use to Class E commercial use without prior approval, up to 500 sq m. Glamping with moveable units on agricultural land for up to 28 days per year is permitted development (GPDO Part 4 Class B) without planning permission. Permanent structures (shepherd huts on hardstanding; safari tents with utilities) require full planning permission. Equestrian change of use requires planning permission — leisure horse keeping is not 'agriculture' under TCPA 1990 s.336.

  • Class Q: up to 5 dwellings; 1,000 sq m total; conversion not rebuild (Hirose [2021]); prior approval required for transport, contamination, flooding, design
  • Class QB (2024): Class E commercial use without prior approval; 500 sq m cap; allows offices, workshops, light industrial, retail
  • 28-day glamping: permitted development for up to 28 days per year without planning; permanent glamping structures require full planning permission
  • Equestrian: requires planning permission; leisure horse-keeping is not agriculture for planning purposes
  • Farm shop and visitor attractions: generally require planning permission; Class R prior approval may assist for existing agricultural buildings

FHL Abolition from April 2025 — Impact on Farm Holiday Accommodation

The Furnished Holiday Let regime was abolished from 6 April 2025. Farm diversification holiday lets (barn conversions; shepherd hut glamping; holiday cottages) lose: Business Asset Disposal Relief on disposal (CGT at 24% not 10%); Business Asset Rollover Relief (reinvestment of proceeds no longer defers CGT); qualification of FHL profits as relevant UK earnings for pension contributions; and exemption from the Section 24 mortgage interest restriction. From April 2025 all diversified holiday accommodation is treated as ordinary residential property investment income — rental losses are ring-fenced to the property business; mortgage interest restricted to basic-rate relief for higher-rate taxpayers.

  • FHL abolished April 2025: farm holiday lets are now ordinary property investment; no special CGT or income tax treatment
  • BADR lost: CGT at 24% on disposal (not 10% with BADR); affects barn conversions, glamping, holiday cottages
  • Rollover relief lost: no CGT deferral on reinvestment of FHL proceeds into another business asset
  • Section 24 now applies: mortgage interest relief restricted to basic rate (20%) for higher-rate taxpayers
  • Pension contributions: FHL profits no longer count as relevant UK earnings for pension contribution purposes

IHT Agricultural Property Relief on Diversified Farm Land

Agricultural Property Relief (APR) under IHTA 1984 ss.115-124 provides 100% relief on the agricultural value of land occupied for agricultural purposes. Land taken out of agricultural use for diversification (glamping; equestrian; commercial letting) loses APR eligibility. Where planning permission or development hope value attaches to agricultural land, only the agricultural value (not the development value) qualifies for APR. Business Property Relief (BPR) under IHTA 1984 ss.103-114 may substitute for APR where the diversification constitutes an active trading business (glamping; farm shop; equestrian centre under active management) — passive letting does not qualify. The October 2024 Budget announced that from April 2026, 100% APR and BPR will be limited to £1 million per estate; above £1m, 50% relief applies (effective rate 20% IHT).

  • APR requires agricultural use: land diversified away from farming loses APR on that area; the test is use immediately before the transfer
  • Development value: APR only covers agricultural value; planning permission creates IHT-exposed development premium above agricultural value
  • BPR for active trading: active glamping, farm shop, equestrian centres may qualify for BPR; passive commercial letting does not
  • April 2026 reform: 100% APR/BPR capped at £1m; 50% relief above £1m; effective IHT rate of 20% on excess qualifying assets from April 2026
  • Advance planning opportunity: review estate structure before April 2026; lifetime gifts of agricultural land may be effective where donor survives 7 years

VAT on Farm Diversification and Conversions

Letting agricultural buildings as workshops or offices is VAT-exempt by default; the farm cannot recover input VAT on conversion costs without opting to tax under VATA 1994 Sch.10 (making rents standard-rated at 20%). Class Q conversions to dwellings: the first grant of a major interest (sale or lease of 21+ years) in a new Class Q dwelling is zero-rated, allowing full recovery of input VAT on conversion costs. The conversion works themselves attract 5% VAT (change of number of dwellings from 0 to 1). Holiday let accommodation: standard-rated (20%) when turnover exceeds the registration threshold (£90,000 from April 2024); VAT-registered farm holiday let operators recover input VAT on refurbishment. The Capital Goods Scheme (10-year adjustment period) applies where input VAT on a building project exceeds £250,000.

  • Commercial farm building lets (VAT-exempt default): cannot recover input VAT on conversion costs without opting to tax
  • Option to tax (Sch.10): 20-year irrevocable commitment; enables input VAT recovery on commercial conversion costs; cannot apply to dwellings
  • Class Q residential — first grant zero-rated: full input VAT recovery on conversion costs; conversion works at 5%
  • Holiday let VAT: standard-rated at 20% above the registration threshold; enables input VAT recovery on refurbishment
  • Capital Goods Scheme: 10-year VAT adjustment on building projects with £250,000+ input VAT recovery; use-changes trigger annual adjustments

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