Consultation On Agricultural Property Relief And Natural Capital - Looking To The Future Of British Farming

• Law Firm: Forsters
• Subject Matter: Environment, Real Estate and Construction, Environmental Law, Land Law & Agriculture
• Author: Charles Hancock and Thomas Mawson
• Published date: 24 May 2023

There was some cautiously welcomed news in the Chancellor's 2023 Spring Budget for those in the agricultural sector with the announcement of a wide ranging consultation on tax in the context of rural land.

In the wake of Brexit, Government schemes introduced as successors to the removal of EU subsidies have shifted the focus away from agricultural activities towards environmental land stewardship. However, tax in the rural economy, particularly Agricultural Property Relief (APR) under the inheritance tax (IHT) regime, has not evolved to reflect this change of emphasis. This leaves the rural sector operating in tax and subsidy frameworks with little clarity and conflicting incentives.

The consultation is broadly in two parts, the first calling for evidence on the tax treatment of environmental land management and ecosystem service markets. Part 2 then focuses on APR as a whole, with an ancillary section to consult on whether the Government should implement the Rock Review's recommendation that APR be restricted to farm tenancies with a life span of at least eight years.

A New Rural Landscape - The Government's Agricultural Policy Shift

Post-Brexit support for farmers and landowners is moving away from the Basic Payment Scheme to Environmental Land Management Schemes (ELMS): 'public money for public goods'. There are three tiers of ELMS:

1. Sustainable Farming Incentive (SFI) will pay farmers to adopt sustainable farming practices.
2. Countryside Stewardship (CS) will pay for targeted environmental work, like restoring wildlife habitats.
3. Landscape Recovery (LR) will fund longer-term, large-scale projects (over 500 to 5,000 hectares), such as improving water quality across a river catchment area.

As well as direct Government support, landowners are being encouraged to access private sector funding through 'ecosystem service markets', including:

• Woodland carbon units, which pay for carbon sequestration.
• Biodiversity Net Gain (BNG): from November 2023 (or April 2024 for small sites), every planning permission will be required to generate at least 10% BNG. While the preference will be for BNG to be delivered onsite, it will also be possible to deliver offsite Landowners will be able to sell BNG units to developers to meet the condition.
• Nutrient Neutrality (NN): to date, Natural England has advised seventy-four local planning authorities that protected habitats within their areas are in unfavourable condition due to excess nutrients and that development should...