Jeremy's Blog 8th March 2024: The Budget - Positive APR Decisions

This article by Jeremy Moody first appeared in the CAAV e-Briefing of 7th March 2024

Agricultural Property Relief (APR) from Inheritance Tax has again proved a very robust relief. In yesterday’s Budget with the financial constraints of poor growth, the Treasury issued the Government’s answers to last year’s major consultation:

• it will work with interested parties to understand what environmental transactions and assets really involve and develop a shared analysis of the issues and so how tax might properly apply
• APR is to be extended from April 2025 to transfers, on death and lifetime, of farmland put into qualifying environmental agreements
• APR will remain available for all let land, not limited to lettings for 8 years and more.

Cost-free to the taxpayer, the Treasury has opened doors, avoided distortions and given certainty.

The CAAV worked hard for each of these answers, making and following up a closely argued, 71 page response to the consultation with detailed analysis, and looks forward to working with the Government in taking these decisions forward. The Financial Secretary to the Treasury replied to the CAAV last week saying:

“my officials really valued the depth of expertise and analysis that you contributed on behalf of the CAAV”.

The central decision extends APR to farmland entered into environmental agreements anywhere in the UK with national and local government and, taken to be at least for England’s biodiversity net gain, “responsible bodies”. Purely private environmental agreements without a “responsible body” are, at least initially, outside this extension but this may be reviewed as British Standards for natural capital investment are developed for accreditation.

Almost cost-free given farmland’s eligibility for APR, this extension will remove Inheritance Tax as an issue for farmers and landowners looking at many more serious environmental commitments (often still with agricultural use). These options can now be considered on business and personal reasons, not pre-empted by fear of Inheritance Tax and its 40 per cent rate. It answers a landlord’s concern about tax status if a tenant entered such an agreement. The statement gives assurance on continuity of relief after the agreement ends. It also gives a signal as powerful as that given by the extension of full APR to land let on new tenancies when FBTs were introduced and gives environmental bodies a positive interest in APR.

The CAAV has been working for this neutrality for some years, promoting the argument and looking to build on previous extensions, including that for Habitats Regulations agreements given in 1997, to remove a tax distortion for decision making that hindered official policy. The rules for APR will apply and we will explore the practical detail as the legislation is drafted.

The present structure of APR on let land is left unaltered. The consultation sought views on the Rock Review’s proposal that it be limited to land let for at least an 8-year term. That has been rejected. CAAV analysis showed that it would have been very damaging to the let sector, losing much land. That has been avoided and the let sector is now better placed for its important role in the coming changes.

Elsewhere, the squeeze on using housing as anything other than as a primary residence continues. From April 2025, holiday lets are to be taxed like longer term lets. The loss of business status for mortgage relief and CGT might bear less on holiday cottage lettings by farms and estates than on more speculative operations elsewhere. The reduction in CGT on house sales to 24 per cent may unlock sales from these sectors, giving more tax income. The loss of multi-property relief from SDLT would affect purchases.

We have had agricultural relief from estate taxes for almost all of the last 130 years. APR has been in place since 1981 and proved resilient, progressively extended to cover stud farms, short rotation coppice, habitats regulations agreements and, when needed but now to go, land in the EU/EEA and with increased rates of relief.

With APR’s close interaction with BPR, it is of particular importance to farmhouses, let land and qualifying land not in business use. Yesterday’s decisions give us a platform for the future.