Budget measures open some tax doors but close others to farmers

Confirmation in the 6 March Budget that agricultural property relief from inheritance tax will be available on land in all Environmental Land Management (ELM) schemes has been generally welcomed, but questions remain.

Land in the Sustainable Farming Incentive (SFI), Countryside Stewardship (CS) and other stewardship schemes is covered, as well as Landscape Recovery, the England Woodland Creation Offer and other similar schemes, from 6 April 2025.

The extension of agricultural property relief (APR) applies across the UK and also includes land managed under environmental agreements with public bodies, local authorities or approved responsible bodies, so taking in biodiversity net gain (BNG), nutrient neutrality and other similar statutory schemes which are a planning requirement.

See also: Biodiversity net gain – legal issues for farmers

However, it remains unclear whether private conservation and other natural capital land uses will be similarly eligible for APR.

The government expects the Budget announcement to help incentivise longer term opportunities on tenanted land where landlords and tenants collaborate to share the benefits of longer term environmental schemes.

The Tenant Farmers Association (TFA) says it will at least remove a disincentive from landlords allowing tenant farmers to take part in schemes.

While welcoming the move for ELM land, the NFU is concerned that extending it beyond ELM may have an adverse impact on food production and farm tenancies.

What does the relief extension cover?

• Lifetime transfers and transfers of land at death on or after 6 April 2025
• Agreements already in place for ELM and other schemes on or after 6 March 2024, including those entered before 6 March 2024 if they remain in place on or after 6 March 2024
• Land where an agreement has ended but which continues to be managed in a way consistent with that agreement.

Qualifications

APR will apply only where the land was agricultural land for at least two years immediately prior to the change to an environmental use.

However, there will be no need to show the land was used for agricultural purposes and would have qualified for APR before the land use change, with HMRC guidance to be set out on these aspects.

The government has confirmed that, in line with the current APR rules for agricultural land, farmhouses and other buildings used in connection with environmental land will qualify for relief where the building is occupied with, and that occupation is ancillary to, environmental land.

Scheme income 

While APR eligibility has been made clearer, no announcement was made on how the income from schemes such as BNG, nutrient mitigation payments and carbon credits will be treated.

For example, in some models, BNG payments covering the whole of a 30-year agreement are paid at the start of that period. 

A working group is being set up by the Treasury and HMRC to examine this with interested parties.

While welcoming the certainty provided by the APR move, Central Association of Agricultural Valuers’ secretary Jeremy Moody says:

“There are currently all sorts of tax uncertainties and fears about environmental transactions. We need to sit down and look at common situations and understand more clearly what’s going on in these emerging markets.

“If we then identify tax problems which need changes in the law, we can answer them in a measured, satisfactory way.”

The prospect of a potential change of government this year should not undermine the progress made, he says.

“I think the commitments are very likely to stand. A working group analysing transactions is hardly likely to cause an incoming Labour government any particular qualms.

“And the extensions to APR are likely to cost the Treasury no money at all. Cost-free to the taxpayer, the Treasury has opened doors, avoided distortions and given certainty.”

Criticism of Budget

TFA chief executive George Dunn says:

“The failure to act on the Rock Report recommendation that APR be allowed only on farm business tenancies of eight years or longer shows a disappointing disregard for the true needs of the tenanted sector of agriculture.”

However, the Central Association of Agricultural Valuers (CAAV) maintains that its research shows the move would have discouraged some landlords from letting at all, and others to reduce terms to just eight years.

The NFU says the budget did not go far enough in offering stability for agricultural businesses, growth in food production and decarbonising the sector.

The measures came in for criticism by several groups for their failure to deliver wider encouragement for greener technologies and their uptake, while the Country Land and Business Association was disappointed by the decision to end the furnished holiday lettings tax regime, which it says will stifle businesses that create jobs and support the rural economy.