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Since the introduction of the Environmental Land Management Schemes (ELMS), one of the main concerns has been the impact of ELMS schemes and other environmental land activities may have on the availability of Inheritance Tax (IHT) reliefs. In response to the growing concern, in 2023 the government announced a consultation snappily titled ‘Taxation of environmental land management and ecosystem service markets’.
As expected, there was a large response from both the agriculture industry as well as professional advisers. In the Spring 2024 Budget, the Chancellor published their response to the consultation as well as providing some much-needed clarity on the IHT treatment on various different environmental schemes. Chris George, Tax Advisory Partner explores the announcements further in the article below:
Environmental Land Management Schemes
Within the Budget, the government announced that from 6 April 2025 the scope of Agricultural Property Relief (APR) will be extended to include environmental land management scheme.
In order to qualify the land in question must be under an environmental agreement with either the UK government, a public body, local authority or other approved body. This means that any land entered into any of the Sustainable Farming Incentive scheme should qualify for APR from next April.
This has provided some welcome clarity to landowners looking at their ELMS options and means that they can fully embrace those schemes safe in the knowledge that their IHT situation is preserved.
Ecosystems Service Schemes
As well as providing guidance on the availability of IHT reliefs available on land used in ELMS schemes, there was also a Budget announcement regarding ecosystem service credits and their associated units.
In recent years there has been significant growth in the popularity of Woodland Carbon, Biodiversity Net Gain and other similar schemes. However there has, and continues to be, substantial uncertainty regarding if land which has been utilised for the purpose of these schemes, qualifies as being used for agriculture or as a trade for tax purposes.
While there hasn’t been the same level as clarity provided as with the ELMS arrangements, the government has announced plans to establish a joint working group between the treasury, HMRC and various industry representatives. The aim of this working group is to identify solutions that provide clarity on the tax treatment of both the production of ecosystem service credits/units as well as the sale of such units.
It is therefore hoped that there will soon be some much needed guidance on this topic which helps assist landowners in making decisions on whether to commit land to these ecosystems services schemes.
Restricting APR
The Budget was however not all good news for the availability of APR. While there was progress made on clarification of the APR rules for land used for environmental purposes, there was also a tightening of the rules in another area.
From 6 April 2024 APR relief (as well as woodlands relief) will be restricted to land and property within the UK. This means that property located in the European Economic Area, the Channel Islands and the Isle of Man will no longer qualify for APR.
This is a significant change to the rules and has not been widely publicised. It will impact on many UK based landowners who have in recent years been attracted to investing in farmland in mainland Europe.
As with any major business decision, any agricultural business who is looking to enter into any ELMS arrangement or one of the ecosystems service scheme should seek advice on the potential tax impact. Similarly, anyone with overseas land which will no longer qualify for APR should seek urgent professional advice.
If you would like to discuss any of the schemes and reliefs mentioned in this article, please get in touch with Chris George or a member of our agricultural team by calling 0330 058 6559 or emailing hello@scruttonbland.co.uk
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