Jeremy's Blog 17th March 2023: Budget 2023 Environmental and APR Tax Consultation

This article by Jeremy Moody first appeared in the CAAV e-Briefing of 16th March 2023

We see growing competition for the use of land with agriculture, itself likely to be on the Missing from the Budget Speech but buried in the accompanying papers, the Treasury has issued an important consultation and call for evidence on major taxation issues for farming, environmental matters and the management and use of rural land.

Opening up important questions, the paper covers:

• the taxation issues for eco-system markets, especially the various credits in which emerging markets are dealing
• the potential extension of APR to land in defined types of environmental land management
• limiting APR on let land generally to tenancies granted for at least 8 years with exceptions.

The Budget papers also propose limiting the application of APR and Woodlands Relief to land in the UK form 6^th April 2024, reversing its extension to the European Economic Area following the CJEU decision in the Jäger case.

The CAAV is now reviewing these proposals and preparing a response, due in by 9^th June. All these measures require changes in legislation, some possibly earlier than others.

Taxation of “Eco-System Service Units” – This is a call for evidence to help understand these commercial operations and the areas of uncertainty in respect of taxation. This includes their interaction with farming, forestry and other businesses.

This may offer an opportunity to raise wider questions of the taxation of environmental activities.

Extension of APR to Land in Defined Environmental Management – The paper calls for practical evidence as to the case for such a change which the CAAV and others have been urging on Government, building on the 1997 extension to land in Habitat Regulations agreements. It first asks about the treatment of land in official scheme agreements and then in other recognised regimes (such as biodiversity net gain or conservation covenants) before considering the appropriate valuation regime.

If such a change is made, it should give landowners confidence to consider taking up qualifying environmental options without uncertainty or the fear of attracting a 40 per cent Inheritance Tax charge on death. Without this change in tax, their land would remain agricultural with APR but public policy and private businesses are frustrated and Government targets might drive greater regulation to achieve change.

Limiting APR to Tenancies for 8 Years or More, With Exceptions – This is a call for evidence following the proposal made by the Rock Review of DEFRA’s Tenancy Working Group, framed in terms of the delivery of environmental goals. The paper briefly reviews some of the arguments both for and against such a move and seeks evidence and views. The CAAV is concerned that such a move could have the perverse outcome of encouraging more land instead to be let for shorter terms or not let at all while it would not encourage any owner to start letting.

Scotland, Wales and Northern Ireland – While much of the paper is written in the context of England, tax measures, especially such capital taxes as IHT, apply equally across the UK and so have effects, positive and negative in Wales, Scotland and Northern Ireland. Each is developing environmental approaches to land management and each has concerns about how land is available to farmers from owners.

The CAAV, with its committees and the opportunities of briefing meetings for members, will be exploring these issues, working from data such as the annual Agricultural Land Occupation Survey, considering historical and other experience in preparing its responses to these important debates that have now been taken forward.