Budget boost for farmers and environment with extension to Agricultural Property Relief

As part of the Spring Budget 2023, the Government has announced an extension to the existing scope of Agricultural Property Relief.

This will now include all environmental land management schemes, covering the Sustainable Farming Incentive, Countryside Stewardship (and other stewardship schemes) and Landscape Recovery, as well as the England Woodland Creation Offer and other similar schemes from 6 April 2025. The extension also applies to the rest of the UK, benefiting all British farmers.

This means farmers and landowners taking part in such 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.

It also removes 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 6 April 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 6 March 2024. This includes an agreement entered into before 6 March 2024 if it remains in place on or after 6 March 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 our commitments in the government response to the Rock Review by removing barriers and improving tenant farmers’ access to schemes. This change will help to incentivise more longer term tenancy opportunities where landlords and tenants collaborate to share the benefits of our longer term environmental schemes.

The government is undertaking the most significant reform of agricultural policy and spending in England in decades to grow and maintain a resilient, productive agriculture sector over the long term and at the same time achieve ambitious targets for the environment and climate. Environmental Land Management and woodland creation schemes will collectively pay farmers and land managers to deliver, alongside food production, significant and important outcomes for the climate and environment that can only be delivered by farmers and other land managers in the wider countryside.

Environment Minister Rebecca Pow said:

We’ve made our commitment to farmers and landowners taking part of our environmental land management schemes clear – we will support you, invest in you and reward your action in supporting our ambitious targets for the environment and climate.

Now we are going further, as announced in the 2024 Budget, land used as part of our environmental land management schemes will now be in scope for Agricultural Property Relief, meaning this land is eligible to be passed on free of Inheritance Tax. It pays to be part of our environmental land management schemes and we will continue to support our farmers and landowners to improve and conserve the natural environment  alongside food production. I would also encourage farmers to take another look at some of the longer-term investment decisions such as tree planting in light of this announcement.