Spring budget 2024: Agricultural Property Relief extended…from 2025

Listening to Jeremy Hunt’s budget speech yesterday, farmers and landowners would be forgiven for thinking that they had been forgotten by government. Yet again, as in March 2023, none of the terms ‘agriculture’, ‘farming’ or even ‘rural’ passed Jeremy Hunt’s lips. However, for those of us waiting with bated breath for an update regarding the consultation on the extension of agricultural property relief (APR) from inheritance tax (IHT) to land delivering environmental benefits, there was good news. 

At page 76 of the budget report, it was announced that: “Following consultation, the government will extend the existing scope of agricultural property relief 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.” This broad statement is supported by a full government response to the consultation which can be found here. The illustrative examples at Annex B are particularly helpful in setting out in what scenarios the extended relief would be available (and perhaps more pertinently when it would be denied). 

At a time when farmers and landowners are being asked to play an increasingly important role in the UK’s environmental commitments, it is somewhat reassuring that the government has taken notice of the case made repeatedly by consultation respondents, that uncertainty as to the IHT implications of environmental schemes is a significant barrier to land use change.

This welcome extension to APR is still subject to various key restrictions:

• Firstly, the relief will only be available for lifetime transfers and on death from 6 April 2025. While private client lawyers often warn clients of being hit by the proverbial bus, farmers and landowners wanting to press ahead with environmental schemes that take land out of agriculture would be well advised to be even more cautious around heavy farm machinery than usual, at least until 6 April 2025 (or better still consider term life insurance to cover the interim period).
• Secondly, the relief is limited to land registered under specific approved bodies and schemes, so farmers and landowners who decide not to participate in the government’s Environmental Land Management Schemes or other approved schemes but still wish to leave their land in a better ecological state than they found it, eg. by creating wetlands or native scrub, could find their IHT exposure increased. It feels somewhat counter-intuitive that their heirs may be disadvantaged simply by the fact that these landowners did not receive payment for delivering such environmental benefits during their lifetime.
• Thirdly, relief will not be available unless the land was “agricultural land” for at least two years immediately prior to the land use change. It will be interesting to see how this is defined in the legislation as there is no need to show the land would have qualified for APR in that period. It would seem therefore that land used as a golf course in the preceding two year period (which evidently wouldn’t have qualified for APR) would not qualify for the extended relief but that land used for the grazing of horses in the same period (which also wouldn’t have qualified for APR) would qualify. 

The government has also refused to make any changes to business property relief (BPR) to deem environmental land management per se as a qualifying activity for BPR. The availability of BPR will remain fact specific and will be limited to trading rather than investment activities.

That said, there is much to be positive about, in particular that:

• Relief will be available (admittedly from 6 April 2025) where there is an agreement or undertaking in place for the environmental land management scheme on or after 6 March 2024, including a scheme which commenced prior to 6 March provided it remains in place on 6 March 2024 – so land taken out of agricultural production under existing schemes will qualify as long as the farmer or landowner survives to 6 April 2025.
• The existing holding periods for APR (2 years for owner occupiers and 7 years for landlords) will not change and the length of time the land is managed under a qualifying environmental scheme will be added to the time it was used for agricultural purposes – the land use change will not reset the clock.
• Relief will continue to be available where an agreement or undertaking has concluded if the land continues to be managed in a way that is consistent with that agreement or undertaking – this seems to an extent at odds with the second restriction mentioned above and it will be interesting to see how this is assessed in practice.
• 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 – there had been concern that decreasing the acreage of agricultural land occupied with the farmhouse by converting to environmental land use could jeopardise APR on the farmhouse so it is reassuring that both agricultural and environmental qualifying land will be taken into account when considering whether the farmhouse is character appropriate.

It is likely that landlords and tenants alike will also welcome the news that the government has decided against limiting APR to tenancies of at least 8 years. Such a proposal risked the unintended consequence of landlords simply taking short-term tenanted land back in hand thus reducing the size of the tenanted sector and making it harder for new entrants to access a tenancy.

So all in all, this seems a positive budget for farmers, landowners and the government’s green ambitions, provided of course that a different government doesn’t change direction prior to these provisions coming into effect.