Agricultural Property Relief extended in budget to include environmental management schemes

Chancellor Jeremy Hunt's Spring Budget included one element of interest to farmers, particularly those in environmental schemes. 

The existing scope of Agricultural Property Relief has been extended to include all environmental land management schemes.

From April 6 2025, it will cover, the Sustainable Farming Incentive, Countryside Stewardship and other stewardship schemes and Landscape Recovery in England, as well as the England Woodland Creation Offer and other similar schemes. The extension also applies to the rest of the UK.

Farmers and landowners taking part in these schemes will be eligible for Agricultural Property Relief and exempt from relevant inheritance tax. Land managed under an environmental agreement with, or on behalf of, the UK Government, Devolved Administrations, public bodies, local authorities, or approved responsible bodies will all be in scope for Agricultural Property Relief.

Defra said the changes also remove a significant barrier to tenant farmers and landlords collaborating to enter schemes by removing the risk that tenants’ participation in schemes would change whether the land is eligible for Agricultural Property Relief.

The new policy design will include the following main features:

• Extended relief will be available for lifetime transfers and transfers at death on or after April 6, 2025.
• Relief will be available for land managed under an environmental agreement with, or on behalf of, the UK Government, Devolved Administrations, public bodies, local authorities, or approved responsible bodies.
• Relief will be available where there is an agreement in place for the environmental land management scheme on or after March 6, 2024. This includes an agreement entered into before 6 March 2024 if it remains in place on or after March 6, 2024.
• Relief will continue to be available where an agreement has concluded if the land continues to be managed in a way that is consistent with that agreement.
• Relief will only apply where the land was agricultural land for at least 2 years immediately prior to the land use change. There will not be a need to show the land was used for agricultural purposes and would have qualified for agricultural property relief before land use change. HMRC will provide guidance on the necessary evidence in due course.
• The existing holding period for agricultural property relief will not be restarted by land use change. This means, for example, if an owner-occupier had occupied agricultural land and used it for agricultural purposes for 2 years or more then converting a parcel of the same land to environmental use will not require the land to be held for a further 2 years to qualify for relief.
• The valuation of the qualifying land will be the market value of environmental land subject to the special assumption of a restriction to its existing use.
• Consistent with the current rules, buildings used in connection with environmental land, including farmhouses, will qualify for relief where that building is occupied with, and that occupation is ancillary to, environmental land.
• Implementing commitments in response to the Rock Review, the Government will remove barriers and improve tenant farmers’ access to schemes, with the aim of incentivising more longer term tenancy opportunities where landlords and tenants collaborate to share the benefits of our longer term environmental schemes.

Environment Minister Rebecca Pow said: “Now we are going further, as announced in the 2024 Budget, land used as part of ELM will now be in scope for Agricultural Property Relief, meaning this land is eligible to be passed on free of Inheritance Tax.

Reaction

NFU President Tom Bradshaw welcome the extension of APR to land in Environmental Land Management (ELM) schemes, which he said will 'remove a barrier of entry for a number of farm businesses and give farmers more choice about how to use their land'.

"But the extension of this beyond ELMs may have an adverse impact on food production and farm tenancies and we will work with Treasury to assess those implications,” he said.

As well as applying to ELMs, the NFU understands that this relief would also be given for other environmental land use and could impact the level of productive farmland being removed from agricultural use. “We will therefore be looking closely at any impact assessment,” it said.

It warned that it could also incentivise owners to take land out of farm business tenancies and private investors to purchase land to enter into environmental schemes.