Small farms across Northern Ireland could be broken up and land values driven down following a controversial House of Lords tax ruling, Finance Minister Sammy Wilson has warned.

The House of Lords has refused to hear an appeal against a court ruling that could leave thousands of hectares of farmland liable to massive unforeseen taxes.

The Court of Appeal decision supported a claim by HM Revenue & Customs that some land let in conacre should be subject to inheritance tax.

The plot of land in question, which was being farmed under a conacre agreement, was reclassified from ‘business activity’ to ‘investment activity’ on the death of the owner. Conacre is an informal system of letting land which is unique to Ireland and a third of farms in Northern Ireland use it.

“I am very concerned over the potential impact this court ruling may have on our local farming community — where one third of its land is let out as conacre,” Mr Wilson said.

“This decision could result in thousands of acres of farmland now being liable to 40% inheritance tax. This could lead to the break-up of small farms and drive down agricultural land values.

“I intend to continue to press the Treasury for recognition of the uniqueness of this issue for Northern Ireland and the implications for our local agriculture industry. I will work with the Ulster Farmers’ Union, and other interested groups, in seeking ways to alleviate the adverse impact of this ruling.”

The Ulster Farmers Union, which supported the challenge in the Court of Appeal, said the full implications of the ruling need to be clarified so farming families can consider their options.

UFU president Graham Furey said: “We are obviously disappointed with the decision by the House of Lords not to allow this appeal to progress. With one third of the land in Northern Ireland let as conacre, the ruling needs to be carefully considered by many local families.

“Inheritance of land within families is an important aspect of family farming in Northern Ireland and we want to protect that. We certainly don’t want to see farming families facing unforeseen large tax bills.

“The UFU has asked for an urgent meeting with the new Finance Minister, Sammy Wilson. This needs to be highlighted to the UK Treasury and a solution found to allow our family farming tradition to continue.”

MEP Jim Nicholson warned the decision could devastate the tradition of passing on farmland to the next generation.

“I have a huge amount of sympathy for the many hard working farm families who will be affected by this,” he said. “However, I will do all I can to fight this.”