Government consults over future of agricultural property relief

Apr 25, 2023

The Government has launched a consultation into the current rules around agricultural property relief from inheritance tax and whether these will prevent farmers changing to more environmentally friendly forms of land use.  

The consultation was announced the March Budget and has been instigated to assess whether the current tax treatment is fit for purpose as the agricultural sector moves from the Basic Payment Scheme to the Environmental Land Management Scheme.  

The consultation will also look at creating frameworks to support ecosystem service markets – markets that farmers and land managers can tap into to attract private investment in exchange for providing services such as carbon sequestration and improved biodiversity.  

Typically, ecosystem service markets involve the use of land to create units of economic value, such as carbon credits, which can then be sold.  

Currently, the main schemes include:  

  • Woodland carbon units 
  • Peatland carbon units 
  • Pending issuance units 
  • Biodiversity units 
  • Nutrient mitigation.  

The consultation is set to run between March 15 and June 9.  

Concerns raised 

According to the Government’s briefing paper, concerns have been raised by some tax advisors and industry representatives that the current scope of agricultural property relief is a potential barrier to some agricultural landowners and farmers making long-term land use change from agricultural to environmental use.  

“The aim (of the consultation) is to explore the extent to which the current scope of agricultural property relief may represent a barrier and, if necessary, potential updates to the scope of the existing land habitat provisions in the relief,” the document states.  

The Government is also using the consultation process to explore a recommendation in the Rock Review to restrict the application of 100 per cent agricultural property relief to farm business tenancies of at least eight or more years under the Agricultural Tenancies Act 1995 and secure agreements under the Agricultural Holdings Act 1986.  

The Rock Review suggests this would encourage property owners to grant long term tenancy agreements and encourage tenants to enter long term environmental agreements.  

Too early to talk about outcomes 

With the consultation just having been launched, agricultural tax expert Ian Parker, director of Whitley Stimpson, said it is too early to second guess what the outcome might be.  

However, he said that the Government was unlikely to stick to the same taxation system when Britain’s farming industry was undergoing the biggest changes in a generation. 

Radical changes to the way farming is funded could lead to radical changes to how it is treated for tax, Ian warned.  

He said: “The way farming and land management is funded is undergoing a fundamental shift, so it is no surprise that the Government is looking closely at the tax treatment of large parts of the industry. That said, agricultural property relief is important to family farms, that any changes could have far reaching consequences for the future viability of farming businesses. So, we would urge the Government to adopt a cautious approach to changing this vital tax treatment and ensure any changes they do make do not disadvantage farmers in any way. We will be watching the progress of consultation closely and will be keeping our farming clients up to date with any progress. However, if you are concerned about the process at all, don’t hesitate to get in touch.” 

Any changes would apply to England only as tax is a devolved issues for Scotland, Wales, and Northern Ireland.  

To find out more about the consultation, go to the Government website 

For any advance on tax planning, contant Ian Parker on (01295) 270200 or email 

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