Clarity on the tax treatment of land held in environmental schemes

Following on from the consultation on the taxation of environmental land management schemes which was launched last March, ending last June and has subsequently been under consideration, a formal response was issued within the appendices to the March 2024 Budget.

Almost 100 applicants responded to the consultation and there was clearly a high level of unanimity in the responses to many of the questions raised. In essence it has now been agreed that:

• agricultural property relief (APR) will be extended from 6 April 2025 to include land managed under a qualifying environmental agreement.
• APR will not be restricted to tenancies of at least 8 years.
• a joint HM Treasury and HMRC working group with industry representatives and input from DEFRA will be set up for a twelve-month period to identify solutions that provide clarity on the taxation of ecosystem service markets where existing law or guidance may not provide sufficient guidance.

Various other points were picked up in the consultation response including the key role which accountancy treatment would play in identifying how the income should be recognised and taxed, and the need for detailed HMRC guidance including worked examples to provide clarity

Detailed provisions include a start date for the new rules of 6^th April 2025 with provision to recognise agreements which were entered into from Budget day, recognition that previous use as agricultural land will be taken into account in assessing whether the two-year occupation requirement is met, and acceptance that 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. There will be no specific changes to the business property rules but, 

“The availability of business property relief in any individual case will be decided on the specific facts of that case in the normal way but, as set out in the consultation, owner-occupiers may continue to benefit from business property relief if the land is still used in the business and the overall business is not one of wholly or mainly making or holding investment.”

According to MHA Partner Joe Spencer, 

“It is good to get a conclusive answer on some of these questions after what had been quite a long wait. This should enable clients to make commercial decisions with more clarity, which is largely why the consultation was launched.”