August 01, 2022


Some feared that BREXIT and the phasing out of Basic Payment Scheme entitlements would result in a decrease in land values. So far this does not appear to have been the case. Indeed in some areas, particularly upland areas of more marginal, less productive land where the values have historically been lower, the land values now actually appear to be increasing. The reason for the increase being the strong demand for land for environmental motivations and for its natural capital.

I have written in previous newsletters about natural capital and the tax impact of the change of use of land where it is taken out of agricultural use for environmental schemes. There continues to be a lack of clarity in the current tax legislation, although, the CLA continues to lobby hard for changes.

Given increasing land values, landowners should also be mindful of the impact of value on their inheritance tax position. Agricultural property relief only applies to the agricultural value of property. It will not apply to hope, sporting, or amenity value, and now, natural capital value. Therefore, where land is worth more than agricultural value, it is important to ensure the uplift will be covered by business property relief (BPR).

BPR is available where land is used for the purposes of a trade. Therefore, if the land is farmed in hand and the business is ‘mainly trading’ relief should be available. Relief is at 0-50% if the land is owned outside the business, or 100% if owned by the business.

Where land is rented to a tenant to farm, BPR will only be available if it is rented by a trading business and again the business must be ‘mainly trading’. The amount of relief (0%, 50% or 100%) will depend on how the business and ownership of land is structured.

It has always been necessary to continually review the structure of the business and, for a diversified business with trading and non-trading, or investment activities, the balance of trading activities compared to investment activities such as rentals and holiday letting. This balance becomes even more difficult to manage as we start to see the use of natural capital assets and environmental income streams, from carbon credits, biodiversity net gain and other income.

Businesses should continue to ensure their business structure is fit for purpose and, for inheritance tax and capital gains tax purposes, the business qualifies as a trading one. In the meantime, we will continue to assist with the lobbying for change to the legislation and a widening of the definition of ‘agriculture’ to include environmental activities.


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