It’s hard enough to be a farmer.

Think of the physical exposure to the elements that they face, the unpredictable weather patterns that impact their crops, the fluctuating market prices for agricultural products, the rising costs of seeds, fertilisers, and equipment, land degradation, pest infestations, water scarcity – the list is endless.

One hurdle that farmers will no longer face, however, is inheritance tax: the tax imposed on the transfer of an individual’s assets or estate to their heirs or beneficiaries upon their death.

A brief overview

In Malta, most farmers don’t own the land they farm. According to the National Statistics Office (NSO), half of the land belongs to the government, 28% is privately owned, and 23% is government-owned and leased to farmers. This means that farmers usually use the land through lease agreements.

This tradition goes back to the time of the Knights, who wanted to improve food supply by offering land to farmers under long-term leases for 99 years. The British also used long-term, low-rent leases in the 19th century.

Several types of landlord-tenant arrangements have been in place since the 15th century. The most common is the ordinary lease, where the landlord keeps ownership, and the tenant has the right to use the land.

The Lease Renewal Act (Chapter 199 of the Laws of Malta) now regulates land tenure, providing a framework for lease procedures. The government’s land management is governed by the Government Lands Act and related regulations.

The issue at hand lies when the owner of the land passes away, whether the owner is using their own land as a farmer, or whether the owner is leasing their land out to a farmer.

Inheritance tax on agricultural land

To understand what is changing, The Journal met Sharlo Camilleri, Permanent Secretary at the Ministry for Agriculture, Fisheries, and Animal Rights. He explained that agricultural land is subject to an inheritance tax since it is an immovable property. According to the Commissioner for Revenue, the succession tax to be paid on inheritance is 5% on the market value of the property, as of the date of death.

Chapter 199 of the Laws of Malta provides protection for farmers who lease land from landowners to continue their agriculture activity, and the lease can end only if the farmer fails to meet the conditions stipulated in Article 4 of the Act.

Camilleri explained that, since December 2022, it was exceedingly difficult for the owner to increase the value of the rent. Hence, on inheritance, land owners were obliged to pay 5% tax on the market value of the property, but were actually inheriting a rented field with a low value.

Following the revision of CAP 199 in December 2022 and the publication of a White Paper on a Reform of Agricultural Land, the Government indicated the removal of the inheritance tax on agriculture land rented to farmers.

In recent years, explained Camilleri, the market price of agriculture land increased exponentially in view of uses other than agriculture, such as for recreation purposes. This pushed up the value of the inheritance tax for leased land, since the law requires that the tax be based on the market value of the property.

“The removal of the inheritance tax will be fair with landowners, as they will have no obligation to pay tax on the market value of a property which is not in their possession. On the other hand, it will assist professional farmers who own agricultural land to invest in their agriculture holdings,” held the Permanent Secretary.

He further anticipated that the removal of succession tax will help to guarantee food security for the island.

One entity that has always insisted that the valuation of agricultural land, upon which rent for farmers is based, should not follow real estate valuation principles is the lobby group Għaqda Bdiewa Attivi (Active Farmers Association). We spoke to its President, Malcolm Borg, who expressed satisfaction with the latest developments.

“Farm owners’ heirs will not have to pay thousands, sometimes tens of thousands, in inheritance tax. They can invest this money in the farm instead. This will further entice owners’ heirs to continue working the farm, hence strengthening the hands of young farmers in Malta.”

This is not the only tax policy aimed at supporting agriculture. In fact, farmers can benefit from a reduced tax on the sale of agriculture products, where tax on the price of every qualifying sale is paid at a rate of three cents (€0.03) for every euro.

The government made an important improvement by fixing issues with the laws about leasing agricultural land, better known in Maltese as ‘qbiela’. This has enabled farmers to continue working the land, whilst compensation was given to impacted owners. This change has simplified the transfer, allocation, disposal, and overall management of government-owned land provided through agricultural leases.

A new Authority

During the reading of the Budget Speech for 2024, the Finance Minister announced the creation of an Authority responsible for agricultural land.

“The new authority is intended to fill in the gap on the administration of privately-owned agricultural land, since government land is already regulated and managed by the Land Authority,” explained Permanent Secretary Sharlo Camilleri.

The Agricultural Land Reform White Paper proposes four main roles for the Authority: 

• Keeping records of private agricultural land transactions in Malta.
• Reinforcing the importance of using agricultural land for farming, following planning rules.
• Giving priority to genuine farmers leasing land to buy it if the owner sells.
• Acquiring land from willing sellers and allocating it to genuine farmers.

Camilleri explained that the Authority’s board will include experts, representatives from other authorities, and various stakeholders. It will need to collaborate with the Public Registry Agency, the Lands Authority, the Planning Authority, the Agriculture Directorate, and the Agriculture and Rural Payments Agency to execute its function, since data on agriculture land is held within different repositories in these agencies.

Rolled-up sleeves

The government is rolling up its sleeves when it comes to providing support towards farmers.

The President of Għaqda Bdiewa Attivi looks at the subject as if it were a jigsaw puzzle. “These changes must be coupled with other policy directions and legislative interventions to have a long-term impact on agricultural land ownership. This is one piece of the puzzle, but an essential one at that,” he observes.

He would know, since Għaqda Bdiewa Attivi has been engaged with legislators and policymakers on issues related to agricultural land management and lease (qbiela) for around three years now.

Although they might be many years away, these changes are a good start towards encouraging more people to consider farming as a viable source of income on a full or part-time basis.