Has the 2023 Budget had any impact on agricultural relief?

Agricultural relief for inheritance tax is currently available on qualifying land and buildings in both the UK and in the European Economic Area (EEA), the Channel Islands and the Isle of Man.  This means that landowners who own agricultural land in these areas had the benefit of being able to pass land on without the agricultural value being subject to inheritance tax.

However, the 2023 Spring Budget has changed the geographical scope of land that will be able to benefit from both agricultural relief and woodlands relief.  From 6 April 2024 property located in the EEA, the Channel Islands and the Isle of Man will not be able to benefit from the relief, only land in the UK will be able to qualify.

Is there any clarity on the availability of agricultural relief where the land is in environmental schemes?

We raised in our recent article the difficulty of knowing how land put into the Environmental Land Management Schemes (ELMS) or other schemes such as using the land for the biodiversity net gain of development sites will be treated for agricultural relief or business relief.

The government is publishing a call for evidence and consultation to explore the taxation of ecosystem service markets and the potential expansion of agricultural relief from inheritance tax to cover types of environmental land management.

The aim is to explore whether the current criteria for agricultural relief will represent a barrier to land being placed in environmental schemes.  The current rules do allow for some specified land schemes.

Taking land out of agricultural use is likely to mean that it will not qualify for agricultural relief but may still qualify for business relief when looking at the business as a whole.

Therefore the government is seeking views in order to decide whether to update the policy for agricultural relief.  The concern is that the potential loss of agricultural relief may be a barrier to landowners and farmers allowing their land to change its use under ELMS or similar schemes.  However, the government would want to ensure that by extending agricultural relief to land taken permanently out of agricultural production would not inadvertently include land that had never been used for agricultural production.

The documents accompanying the budget also show that the government is planning on using this review of agricultural relief to explore in more detail a recommendation that 100% agricultural relief on land that is subject to a short term farming tenancy of less than 8 years could be restricted, which could have a significant impact on land owners who do not farm their land themselves.

So whilst there are still no clear answers available it does seem that the question of relief is now being considered. We will monitor the situation closely and issue updates as and when more information is available. In the meantime, if you have any questions about agricultural relief, please get in touch info@ts-p.co.uk.