As called for in the Rock Review, and following the call for evidence and consultation that was announced last year, the Chancellor, The Rt Hon Jeremy Hunt MP, has used the March 2024 Budget to extend the scope of agricultural property relief (APR) with effect from 6 April 2025. As long as the land in question is already eligible for APR, the extension will apply to land managed under an environmental agreement with, or on behalf of, the UK government, Devolved Administrations, public bodies, local authorities, or approved responsible bodies where there is an environmental land management scheme agreement in place on or after 6 March 2024. The Government announcement is here.
The value of land qualifying for the extended APR will be the market value of environmental land subject to the special assumption of a restriction to its existing use. That is the same as the existing valuation approach for agricultural land and means that, if the unrestricted market value is greater than the restricted value, it is only the restricted value that benefits from APR.
We are pleased to see the announcement that the government will establish a joint HM Treasury and HMRC working group with industry representatives to identify solutions that provide clarity on the tax treatment of ecosystem service markets. That review could open the door to establishing that, in appropriate cases, the use of land to provide ecosystem services is a business activity that qualifies the land for business asset relief for inheritance tax and for capital gains tax.
These reliefs currently apply to all land that is used by in-hand farming businesses and apply to the unrestricted market value. They are therefore of greater value to the tax payer than APR and whether they will or will not be available on land entered into environmental land management agreements and for the provision of associated ecosystem services is likely to have a significant impact on the development of this sector and, in particular, the uptake by owner-occupiers who are currently actively farming their land.
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