Budget consults on IHT relief for environmental land use

The government has issued a consultation on whether 100% agricultural property relief from inheritance tax (IHT) should apply when farmers make long-term changes from agricultural to environmental land use.

This was included in the Treasury papers accompanying the Budget but was not in the chancellor’s speech.

Questions over access to agricultural property relief (APR) for land in some aspects of Environmental Land Management (ELM), biodiversity net gain, nutrient neutrality projects and other environmental services is holding up many decisions on entering these long-term commitments.

See also: Advice on long term land agreements as new markets develop

Calls for clarity having been repeatedly made over the past few years.

“The aim is to explore the extent to which the current scope of agricultural property relief may represent a barrier and, if necessary, potential updates to the scope of the existing land habitat provisions in the relief,” states the consultation.

This reference to habitats will be taken as a positive indication by interests who want to see APR extended to long-term environmental uses of farmland – they cite APR having previously been extended to land managed under specified habitats regulations as a precedent for such a move. 

Country Land and Business Association (CLA) president Mark Tuffnell said: “The CLA has campaigned extensively to change the definition of agriculture in the tax system to include ecosystem services. 

“It is vital to give farmers and landowners the confidence they need to engage with environmental delivery, improving biodiversity and carbon sequestration.   

“This change would also serve to encourage farmers to look afresh at entering into Environmental Land Management schemes.” 

Along with the IHT consultation came a call for evidence on the income and corporation tax treatment of payments for ecosystem services.

One of the key questions is how the tax system should account for the timing difference between upfront and ongoing project management and delivery costs.

Rock Review and APR

The announcements accompanying the budget also gave a government commitment to explore a recommendation by the Rock Review of farming tenancies, published in October 2022.

This recommended restricting 100% APR to land in farm business tenancies of at least eight or more years and to secure agreements under the Agricultural Holdings Act 1986.

The aim of this is to encourage landlords to grant long-term tenancy agreements and to help tenants enter long-term environmental agreements.

The inclusion of this in the Treasury documents was described by Tenant Farmers Association secretary George Dunn as “a huge win for TFA lobbying”.

The consultation runs until 9 June.