The purpose of the consultation was two-fold:

1. To call for evidence on the tax treatment of the production and sale of ecosystem service units, and
   
2. To consider whether the rules for agricultural property relief (APR) may need to be changed to prevent them hindering the uptake of new environmentally beneficial schemes. It also sought views on the recommendation in the Rock Review of tenant farming in England to restrict the application of 100% APR to longer tenancies of eight or more years.

HMRC issued their response to the consultation at the Budget in March and it is generally encouraging news.

The Government’s headline response was as follows:

• Establish a joint HM Treasury and HMRC working group with industry representatives to identify solutions that provide clarity on the taxation of ecosystem service markets where existing law or guidance may not provide sufficient clarity
  
• Extend the existing scope of APR from 6 April 2025 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
• Not to restrict agricultural property relief to tenancies of at least eight years
  

Further details will be issued in the coming months, but the response also provided the following details about the extension to APR.

• It will be available where there is an agreement in place for the environmental land management scheme on or after 6 March 2024, if it remains in place on or after 6 March 2024, and will continue to be available where an agreement has concluded provided the land continues to be managed in a way that is consistent with the agreement.
• It will be available only where the land was agricultural land for at least two years immediately prior to the land use change. However, slightly confusingly, HMRC states that there will not be a need to show the land was used for agricultural purposes and would have qualified for APR before the change in use. HMRC have promised guidance on what will be required to evidence this in due course.
• The existing holding period for APR will not be restarted by the land use change. This means an owner-occupier had used agricultural land for agricultural purposes for two 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 two 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. Hope and development value, where relevant, remain elements of open market value but, consistent with the current valuation rules, will not be included in the value qualifying for APR.
• Consistent with the current rules, farmhouses and ancillary buildings will qualify for relief if occupied with, and that occupation is ancillary to, the environmental land.

Whilst broadly encouraging, there are a couple of concerns in the detail.

• The delay in the extension to the relief until 6 April 2025 means it would not cover a lifetime gift or death before then.
• There is uncertainty about what information will be required to evidence the agricultural use of the land before the change of use.

This is an area that we will continue to monitor and update you on in future briefings.

This article is from the latest edition of our Agricultural Briefing. To receive future copies of any of our newsletters directly to your inbox, please  visit our preference centre   to register your interest.