Last week in the Budget it was confirmed that the existing scope of Agricultural Property Relief (APR) for inheritance tax will be extended from 6 April 2025 to land managed under an environmental agreement, and APR will not be restricted to tenancies of at least eight years in term. 

The announcement was a major step towards clarifying the tax treatment of environmental services for inheritance tax purposes, but the devil will be held in the detail, which we await with interest. Meanwhile it would be prudent to proceed with caution for two reasons.

First, we don’t yet have the ‘black letter law’ or statute to provide the framework of APR in the context of eco-system services and second, there is no case law providing evidence of how the legislation is being interpreted to guide us in terms of its application in practice. For example, it is difficult to see how an estate or farm business that is put entirely into environmental schemes enables the owner to qualify as an active farmer, allowing the farmhouse to be treated as an agricultural asset. Linked to all of the above is the fact that it is highly unlikely the legislation will be in place prior to a general election and any future government could change its mind.

However, the decision not to limit APR to tenancies of eight years or more provides clarity for landlords and tenants and enables the continuation of complete flexibility and collaboration between parties. 

It is worth noting we have to go back almost 30 years to September 1995 for the last wholesale statute changes around APR, when the rate of relief on new agricultural tenancies increased from 50% to 100%. 

Further information

Contact Clive Beer