CLA responds to consultation on tax and environmental land use

CLA Private Client and Tax Adviser Jack Burroughs discusses the CLA’s response to the government’s consultation on the taxation of environmental land management and ecosystem service markets
Sun shining through trees

The CLA has been lobbying the government for several years in relation to the tax consequences of environmental land use. This made the launch of the latest consultation, by HM Treasury and HM Revenue & Customs, a very welcome one.

Two of our major requests have been for the expansion of inheritance tax reliefs and greater clarity on the tax treatment of payments for such activity. We believe that both are needed in order to avoid tax deterring landowners from entering into environmental schemes. To see both issues addressed in the consultation therefore was reassuring to see.

The first part of the consultation examined areas of uncertainty around ecosystem service payments. The CLA’s response identified several issues in which the tax treatment is currently unclear, and identified ways that these could be resolved to encourage the adoption of environmental schemes by landowners.

The second part of the consultation focused on the government’s proposed extension of agricultural property relief (APR) to cover environmental land management. It acknowledges the concerns that have been raised by the CLA and others that the current scope of agricultural property relief is one potential barrier to some landowners and farmers making long-term land use change from agricultural to environmental use.

The tone of the consultation suggests that the government accepts in principle the CLA’s arguments that this extension is needed, and that the aim is to clarify the precise boundaries of the extended relief. The CLA’s response therefore aims to ensure that the boundaries are drawn sufficiently widely that members diversifying into environmental land management are not disadvantaged.

Particular points made in our response include aiming to ensure that the relief is not limited to land previously in agricultural use, and showing the need for similar provisions for business property relief (BPR) so that diversified business’s relying on the Balfour test do not jeopardise their entitlement to BPR when entering into environmental land use.

The consultation also raised the possibility of APR being removed from Farm Business Tenancies of less than eight years, as suggested in Baroness Rock’s recent review of agricultural tenancies. We have explained in our response the difficulties that this would cause for landowners and for tenants, and highlighted the risk that it would lead to a restriction in the land available on the tenancy market.

We are very grateful to the members who have provided details of their own experience around ecosystem services, both those currently participating in various types of environmental scheme and those who are currently deterred by the tax impact. These examples have been vital in explaining to the government the way that these payments are currently being structured in practice, as well as demonstrating how much more potential land could be unlocked for environmental management if the tax barriers can be addressed.

We are now waiting for the government to set out its intentions following the consultation, and we will of course keep members updated on this.

Key contact:

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Jack Burroughs Private Client and Tax Adviser, London