As part of the 2024 spring budget, the UK government has announced an extension to the existing scope of Agricultural Property Relief (APR).
This will 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 April 6, 2025.
The extension also applies to the rest of the UK, benefiting all British farmers.
The change means that farmers and landowners taking part in such schemes will be eligible for APR 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 APR.
It also removes a 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.
However, the Tenant Farmers Association (TFA) said it is “bitterly disappointed” that Chancellor of the Exchequer, Jeremy Hunt, has “closed the door” on the idea of restricting APR from Inheritance Tax only to those landlords prepared to let on a long-term basis.
TFA chief executive, George Dunn, said “Whether the bar was set at eight years or 10 years, restricting agricultural property relief from inheritance tax would have been the right thing to do. What is the public benefit of that massive state support to the landlord sector if it continues to offer such restricted security of tenure.”
“Everyone agrees that longer term tenancies provide the best basis for funding investment, delivering productivity gains and securing environmental objectives.
“Long term agreements also mitigate against the use of land in environmentally damaging ways by those who may only have a short-term interest and who will seek to exploit that interest to the detriment of long-term and wider public benefits.
“However, what is clear, is that this cannot be left to market forces alone. The market is not delivering sustainable agreements and this market failure could have been addressed through the changes the TFA had proposed to inheritance tax relief.”
New policy design
As a result of Hunt’s spring budget, 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 March 6, 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 two years immediately prior to the land use change;
- The existing holding period for agricultural property relief will not be restarted by land use change;
- 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;
- The removal of barriers with the aim of improving tenant farmers’ access to schemes.
Environment Minister Rebecca Pow said: “We’ve made our commitment to farmers and landowners taking part in our Environmental Land Managers 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 ELM 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 ELM 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.”
