NFU Scotland is pressing the new Chancellor of the Exchequer, Alistair Darling, for some inheritance tax relief on let land to encourage entrants to farming.

The price of purchasing land is a major block to those going into agriculture. Renting land is a more viable option, yet the tax system creates a disincentive for current owner-occupiers to let land because rental income is treated as "unearned" rather than "earned" income. It therefore loses out under allowances relating to income tax, capital gains tax, inheritance tax and value-added tax.

UK tax policy has consistently favoured earned income by people carrying on a trade themselves, such as in-hand farming, as opposed to unearned income from people whose business is the provision of land and buildings.

An example of the impact is the tax treatment of the earned income from a farming enterprise. If it made a loss one year, that loss can only be used to offset profits from the same trade. As a result, because rental income is not considered the same trade (it is unearned rather than earned income) losses from farming activity cannot be offset against it.

This heavily influences attitudes towards the letting of land, and acts as a barrier to new entrants.

NFUS president Jim McLaren said: "Land is a limited commodity, so prices will always be high. Encouraging existing owner-occupiers to rent out land to new entrants could allow many to get their first step onto the farming ladder.

"By treating rental income in the same way as other income that derives from farming activity, and providing some inheritance tax relief, letting land becomes a much more viable prospect for potential landlords."

Other points of concern about road tax for essential farm vehicles and investment in agricultural buildings were also at the top of a list of issues raised in a letter sent to the Chancellor.

In the last Budget, the vehicle excise duty for band G cars was raised from £215 to £300. This is set to rise again to £400 from 2008. NFUS criticises the move because it hits farmers and other rural dwellers for whom these larger vehicles are essential.

The agricultural buildings allowance is to be phased out, with its eventual removal by 2011. That means that farmers who have invested in an agricultural building in recent years will find they will not receive the tax break they had budgeted for, a situation the union describes as unjust.

Restrictions lifted on set-aside Farmers will be able to free set-aside land to feed their livestock where heavy rains have ruined summer grazing pastures, Richard Lochhead announced yesterday, writes Rog Wood.

The Cabinet Secretary for Rural Affairs and the Environment lifted the EU restriction on set-aside to allow farmers to use the land for grazing or to provide feed for livestock before the restriction period ends on August 31.

Under EU regulations the set-aside period is January 15- August 31, during which farmers must not use the land for any type of agricultural production. The only exception is non-food crops grown under contract for an approved use.

The rainfall over the past weeks has the potential to affect fodder supplies. The derogation allows farmers and crofters to graze their own animals on set-aside land or take a fodder crop from them. The derogation is subject to the condition that the land is not used for lucrative purposes - in particular, that no fodder produced on that set-aside land is sold.

Those wishing to use the derogation should e-mail or write to their local area office explaining their need to use the land.