Budget: Consultation on APR and environmental land management

Consultation considering extension of Agricultural Property Relief to non-agricultural land stewardship and tightening rules for tenancies.

‘Stewardship’ and tightening tenancy rules

Alongside the Budget documents a new consultation entitled ‘Taxation of environmental land management and ecosystem service markets’ was published.
This consultation and call for evidence considers a number of wider environmental issues. ‘Part 2’ of this document is a consultation about the scope of two aspects of Agricultural Property Relief (APR) for Inheritance Tax (IHT) purposes. Firstly, expanding APR to allow for non-agricultural land stewardship schemes. Secondly, tightening APR for landlords so that they only get 100 percent relief where the tenant has an interest of at least eight years. It has been clear that APR needed some reform if tax policy is to support the Government’s intended moves from subsidy based land ownership to a system which rewards countryside stewardship and sustainable farming initiatives.

This is because when land moves permanently out of agricultural use it ceases to qualify for APR. The loss of APR may far outweigh any government payments and effectively prevent the farmer/landlord from participating in non-agricultural schemes. In the past there have been rules to bring specific stewardship schemes into APR and the sector has been hoping, if not assuming, that the same would happen again.

The availability of APR for landlords is the subject of discussion and speculation from time to time with options varying from extension to abolition. Last autumn the Rock Review was published, making a number of recommendations to try to incentivise leases better suited to longer term tenancies and, arguably, with better terms for tenants.
The new consultation, which runs until 9 June 2023, is looking at two aspects:
  • Expanding APR to allow for non-agricultural land stewardship schemes - there are some interesting points in the consultation about how the Treasury believes natural capital is currently taxed (i.e. without any reform) and also how the Government wants to target the expanded relief quite closely, as it is keen to avoid giving APR on land that has never been used for agriculture; and
  • Tightening APR for landlords so that they only get 100 percent relief where the tenant has an interest of at least eight years - this is one of the recommendations from the Rock Review. In that review it was proposed that this could be the term of the lease from inception and didn’t need to be the term remaining on the IHT charge date. It will be interesting to see how closely to the Rock Review the proposals develop and whether the other tax recommendations from this review are picked up in due course.

We note the intention is that any extension or change to APR to deal with these issues would only apply to land in the UK and not to agricultural land in the Channel Islands, the Isle of Man or a European Economic Area state. This is in line with another announcement on Budget Day that APR and Woodlands Relief will in future be restricted to UK land.

Overall, our initial assessment is that the consultation on non-agricultural land stewardship usage is good but expected news for those interested in diversification into natural capital. For landlords, the suggested tightening of the relief may seem to be cutting back on APR, but we expect that overall landlords may benefit in the round. This is because APR for landlords will perhaps have a more secure future if it has been reformed in order to focus the benefits and incentives in a way that is perceived to further government policy.

If you would like to consider these issues further with us, please contact Daniel Crowther or your local Family Office and Private Client specialist.