Government initiatives often shape the landscape of various sectors, and agriculture is no exception. Recent developments in the UK's environmental policies are set to bring significant changes to agricultural property relief (APR).
Background
In 2023, the UK government initiated a consultation and called for evidence regarding the taxation of environmental land management and ecosystem service markets. The culmination of this consultation, unveiled alongside the 2024 Spring Budget revealed crucial amendments poised to reshape the APR landscape.
Agricultural property relief changes
It has been announced that from 6 April 2025, APR will undergo an expansion to encompass land managed under environmental agreements with or on behalf of the UK government, Devolved Administrations, public bodies, local authorities, or approved responsible bodies. This means it covers schemes like the Sustainable Farming Incentive and conservation covenants with responsible bodies used to enforce bio-diversity net gain, but not environmental agreements between two private parties.
Unlike previous restrictions, APR will no longer be limited to tenancies of at least eight years, thereby widening its accessibility and applicability.
Furthermore, a joint working group comprising representatives from HM Treasury, HM Revenue and Customs (HMRC), and industry representatives will be established. This working group will work on clarifying the tax treatment concerning the production and sale of ecosystem service credits and associated units, this collaborative effort aims to foster clarity and coherence within the taxation framework.
In tandem with these changes, updated legislation has been published to reflect modifications concerning lifetime transfers made before 6 April 2024. These adjustments, following the issuance of draft legislation on 18 July 2023 aimed at restricting the geographical scope of APR and woodlands relief from 6 April 2024.
Comment
We see these changes as a positive step towards giving more clarity on how environmental schemes will be treated for inheritance purposes. There is still some way to go to see how this makes it into legislation and then continues to evolve.
How can we help?
At Hawsons our dedicated team of specialist agriculture accountants understands that farming isn’t just a business; it’s a way of life.
The rural and agriculture sector is a specialist sector, with unique practices and conventions. We act for a significant number of arable farms and assist farming families in many matters specific to agriculture and farming. This includes tax, will planning and succession planning.
We have been able to assist our farming clients to add value to their businesses. We have advised on the financial and tax consequences of property development, green technologies and capital allowance planning. In particular, we can assist in the area of capital taxes planning. This is a significant issue for farmers following the increase in land values and the availability of development opportunities.
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