While a report published yesterday claimed that a major reform of land taxes could help Scotland create a more resilient economy, farming and landowning bodies said such a move would be “entirely unacceptable”.

They termed the proposal a “blunt tool” which would jeopardise the sustainability of farming businesses and deliver a hammer blow to the entire rural economy.

The report drawn up for the Scottish Land Commission pointed out that while major changes to corporation, inheritance and income tax would require action from Westminster, Scotland already had devolved competency for council tax, non domestic rates and the Land and Buildings Transaction Tax.

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Central to the farming’s fears were suggestions that Agricultural Property Relief (APR) which allows farms to be inherited without incurring tax could be significantly altered.

Stating he was “extremely worried” about the direction of travel indicated in the report, NFUS president, Andrew McCornick said that the current measures ensured continuity and effective business planning - and had to continue:

“It is worrying for industry that the focus of the report seems to be on land ownership rather than how land is being used.” He said that any major changes would threaten the sustainability of farming businesses and the ability of industry to meet food and drink targets.

But he added that the union also recognised the role that taxation could play in helping the tenanted sector:

“There are examples of other countries – Ireland is highlighted in the report - where it has been possible to influence behaviour to provide more opportunity for the next generation to get into farming which we could learn from. However, the politics must fit and ultimately landowners need certainty and an assurance that their course of action is low risk.”

The report, however, recognised that changes to property relief could cause problems for the industry - but noted that with little data available, it was unclear if the relief actually achieved its intended objective of protecting family farms.

It also pointed out that investors could use the relief to pass their wealth to their children taxfree – adding that this loophole could be an important factor behind the rapidly increasing prices of farmland.

“One potential reform that has been proposed is limiting Agricultural Property Relief to working farmers as opposed to investors,” noted the report but added that legally defining “working farmer” was challenging.

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It noted that an all party political group report had recommended the elimination of agricultural property relief, with potential for a more limited 50% reduction in relief or a cap on total relief set at £5 million or £10 million - or requiring farms to be held for a certain period of time.

Sarah-Jane Laing, chief executive of Scottish Land & Estates, said that while her organisation would need to reflect on the details, the removal of Agricultural Property Relief would have the potential to enact the break-up of family farms across Scotland which would be a hammer blow to the rural economy.