Budget confirms land IHT relief in certain environmental schemes

Agricultural property relief from inheritance tax is to be extended from 6 April 2025 to land managed under environmental agreements with the UK government, public bodies, local authorities and approved responsible bodies.

This long-awaited clarification was buried in Treasury documents accompanying this week’s Budget.

“This will be good news for farmers looking to enter into biodiversity net gain or natural capital markets,” said Luke Cochrane, a director of Cambridgeshire-based adviser Land Family Business.

“We await clarity on the income tax and capital gains tax treatment.”

See also: Biodiversity net gain – legal issues for farmers

A working group is being established by the Treasury and HMRC with industry representatives to identify solutions for the taxation of ecosystem service markets. 

In a blow to the farm holiday letting market, the chancellor is abolishing the tax regime for furnished holiday lets (FHLs).

In his Budget speech, Jeremy Hunt said that FHLs restricted the availability of long-term lets for local people.

Such ventures attract income, capital gains and, on a case-by-case basis, inheritance tax advantages.

This will affect the many farming businesses that have diversified into this activity, said Peter Griffiths, tax partner with accountant Hazlewoods. “However, we need to see the detail of the exact provisions when released to confirm how this will impact existing furnished holiday letting businesses.”

Other measures affecting farming businesses and families included:

• A further fuel duty freeze for 12 months, including the 5% temporary cut announced in autumn 2023 that was due to end this month
• A 2p cut in the rates of both employee and self-employed national insurance, saving the average employee an estimated £900 a year and the average self-employed person £650 a year 
• A cut in the rate of capital gains tax on property from 28% to 24%, effective immediately
• A rise in the turnover threshold at which businesses must register for VAT, from £85,000 to £90,000
• The child benefit charge is to move in future to a household basis, which will take many farming families out of the net of this charge. An immediate change was made to lift the threshold at which the charge kicks in to £60,000
• Full expensing for leased assets – draft legislation is to be published to allow 100% of expenditure on qualifying assets to be offset against business income in the year it is incurred for those trading as a company.