Yes, it can. Land let to a solar farm usually loses agricultural property relief (APR) from inheritance tax, because it is no longer farmed. Since 6 April 2026, full relief on farm and business property is capped at £2.5 million per person, so losing APR on solar land can matter more than before. Take specialist advice before you sign anything.

Solar farm inheritance tax: the short version

  • APR covers land that is farmed. A solar lease normally ends that, so APR is usually lost on the leased land.
  • Business property relief (BPR) might help, but only in some cases, and it is never certain.
  • The £2.5 million allowance for 100% relief now applies to farm and business property combined. Above that, relief is 50%.
  • The rent, option payments and any lease premium are also taxed. VAT may apply too.

Agricultural property relief (APR)

APR gives relief from inheritance tax on the agricultural value of farmland. To qualify, the land must be used for agriculture. HMRC sets two tests:

  1. You farmed it yourself for the two years before the death or gift, or
  2. You owned it for seven years and someone farmed it throughout that time.

When you grant a solar lease, the solar company becomes the occupier and the land is used to make power, not food. Most advisers agree this means APR is lost on the leased area.

What about sheep under the panels? Grazing helps the land, but it does not reliably save APR. The tenant is still the solar company. Some advisers think a grazing licence back to the farmer may help on part of the land, at its agricultural value only. Nobody can promise it.

Business property relief (BPR)

BPR covers trading businesses, not investments. On its own, land let for rent is an investment, so it does not qualify.

BPR can still apply if the solar land is part of a larger farming business and the rent is a small part of the whole. Courts look at the business in the round (advisers often call this the “Balfour” test, after a case on a mixed estate). But solar rent can be high compared with farm profits. If the rent becomes the main source of income, BPR is at risk across the business, not just on the solar field.

The April 2026 changes to APR and BPR

The rules changed on 6 April 2026, under the Finance Act 2026:

  • £2.5 million allowance per person for 100% relief on combined farm and business property. This was raised from the £1 million first announced, in a government update on 23 December 2025.
  • 50% relief above £2.5 million. That means an effective inheritance tax rate of 20% on the excess.
  • Couples can pass any unused allowance to a spouse or civil partner, so up to £5 million between them. With two £325,000 nil-rate bands, the government says a couple can pass on up to £5.65 million of farm free of tax.
  • Interest-free instalments. Tax on farm and business property can be paid over 10 years, interest-free.
  • Lifetime gifts made on or after 30 October 2024 can use up the allowance if the giver dies within seven years.

The allowance only helps with land that still qualifies. If APR and BPR are lost on your solar land, that land falls outside the allowance and is taxed in full.

Can the land get APR back after the lease?

Usually, yes, but not straight away. When the lease ends and the land is restored and farmed again, it must pass one of the HMRC tests above. That normally means two years of farming it yourself, or seven years of ownership with farming throughout. A death in that gap could leave the land without APR.

Leases now run for 40 years or more, so the land will very likely pass to the next generation during the lease. Plan for that.

Other solar farm tax implications

Income tax on the rent

  • Solar rent is property income, not farming income. It is taxed at your normal rates. No National Insurance is due on it.
  • From 6 April 2027, property income in England, Wales and Northern Ireland is taxed at new rates of 22%, 42% and 47%, two points above the main rates.
  • Rent cannot simply be set against farming losses. Talk to your accountant about how to hold the land.

Capital gains tax (CGT)

  • Option payments are usually treated as a capital disposal, so CGT may apply.
  • A lease premium (a lump sum on signing) on a lease of 50 years or less is partly taxed as income.
  • Solar can raise your land value. That can mean a bigger CGT bill on a later sale or gift.
  • Holdover relief, which lets you pass on land to family and defer the gain, may not be available once land is let for solar. Some families gift land before planning is granted, while the value is lower. This needs advice.

VAT on the rent

  • Rent from land is normally exempt from VAT.
  • You can opt to tax the land. Then you charge VAT on the rent, and you can reclaim VAT on related costs. Solar operators can usually reclaim it, so many don’t mind.
  • An option to tax is a long commitment. In most cases it can’t be revoked for 20 years.
  • If you use the Agricultural Flat Rate Scheme, check first. You cannot stay in the scheme if your non-farming income goes over the VAT registration threshold.

Business rates

Business rates on the solar farm are normally paid by the operator, as the occupier. Make sure the lease says so in plain terms.

What can you do?

  • Get advice before heads of terms. Many choices close once you sign. What to check in a solar lease.
  • Look at the whole farm. Which land, how much and who owns it all affect the tax.
  • Think about timing of any gifts to the next generation.
  • Consider life cover for the possible tax bill during the lease. Some advisers suggest this.
  • Keep grazing where you can, and get the licence terms right.

Please use a specialist agricultural accountant or tax adviser and a rural solicitor. Rules differ between people, and the details matter.

What we do

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Related: Solar farm rent per acre

Sources

Facts last checked 25 October 2026. Tax rules change and every estate is different. This is general information, not tax, legal or financial advice. Always take advice from your own accountant and solicitor.