- As announced at Spring Budget 2023, the government consulted on elements of the tax treatment of ecosystem service markets and environmental land management, to determine how farmers and land managers can be best supported now that the UK has left the EU’s Common Agricultural Policy. The intention was to phase out subsidies for land ownership and to instead support provision of environmental goods and services alongside food production with a view to enabling farmers to have resilient businesses, producing the food the UK needs and protecting and enhancing the natural environment.
- Part 1 of the consultation was a call for evidence on the tax treatment of the production and sale of ecosystem service units (e.g. woodland, peatland and biodiversity “carbon units”). The aim was to understand the commercial operations and the areas of uncertainty in respect of taxation.
- Part 2 of this document was a consultation about the scope of agricultural property relief (“APR”) from inheritance tax. The aim was to explore the extent to which the current scope of APR may represent a barrier and, if necessary, potential updates to the scope of the existing land habitat provisions in the relief. The government was also using this opportunity to explore in more detail a recommendation in the recent Rock Review of tenant farming in England to restrict the application of 100 per cent APR to longer tenancies of 8 or more years.
- The government responded to the consultation on 6 March 2024 and decided the following:
- to establish a joint HM Treasury and HMRC working group with industry representatives to identify solutions that provide clarity on the taxation of ecosystem service markets where existing law or guidance may not provide sufficient clarity.
- to extend the existing scope of APR from 6 April 2025 to land managed under an environmental agreement with, or on behalf of, the UK government, Devolved Administrations, public bodies, local authorities, or approved responsible bodies.
- not to restrict agricultural property relief to tenancies of at least 8 years.
- There will be a restriction of the geographical scope of APR and woodlands relief to property located in the UK only. This means property located in the Channel Islands, the Isle of Man, the EU, Norway, Iceland and Liechtenstein will be treated the same as other property located outside the UK.
- Timing: The government responded to the consultation on 6 March 2024. The extension to the scope of APR will be from 6 April 2025. The changes to geographical scope of APR and woodlands relief to property located in the UK only has effect from 6 April 2024.
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