Extension of Inheritance Tax Agricultural Property Relief to environmental land management agreements
Published 30 October 2024
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Who is likely to be affected
This measure affects individuals and the estates of deceased individuals and their personal representatives where agricultural landowners and farmers make long-term land use change from agricultural to environmental use.
General description of the measure
This measure extends the scope of Agricultural Property Relief from Inheritance Tax to land managed under an environmental agreement with, or on behalf of, the UK government, devolved governments, public bodies, local authorities, or approved responsible bodies. This means land taken out of agricultural production permanently or for an extended period for this reason does not lose relief.
Policy objective
This measure supports the UK government’s wider environmental objectives to support farmers and land managers to deliver, alongside food production, significant and important outcomes for the climate and environment. It is intended to prevent the potential loss of Agricultural Property Relief being a barrier to the involvement of agricultural landowners and farmers in land use change under an environmental agreement including, but not limited to, the environmental land management schemes in England and equivalent schemes elsewhere in the UK.
Background to the measure
Subject to certain conditions, landowners can receive Agricultural Property Relief from Inheritance Tax on the agricultural value of the land when it is being used for agricultural activities. Actions taken by farmers to manage their land in an environmentally sustainable way, such as improving soil health, should not normally have a bearing on the availability of relief under the existing Agricultural Property Relief rules. The land is still being used for agricultural purposes and Agricultural Property Relief will continue to apply. However, land that has been taken out of agricultural production over an extended period for an environmental scheme or project is unlikely to qualify for Agricultural Property Relief.
Following concerns raised by some tax advisors and industry representatives that the existing scope of Agricultural Property Relief is a potential barrier to some agricultural landowners and farmers making long-term land use change from agricultural to environmental use, the previous government consulted on the taxation of environmental land management and ecosystem service markets. Read the consultation and the previous government’s response, published in March 2024.
The government has also announced it will reform agricultural property relief and business property relief from 6 April 2026. Relief of up to 100% is currently available on qualifying business and agricultural assets. In addition to existing nil-rate bands and exemptions, the 100% rate of relief will continue for the first £1 million of combined agricultural and business property to help protect family farms and businesses, and it will be 50% thereafter.
Detailed proposal
Operative date
This measure will take effect from 6 April 2025.
Current law
Current legislation is at Chapter 2 (agricultural property) of Part V (miscellaneous reliefs) of the Inheritance Tax Act 1984.
Chapter 4 of the consultation response published on 6 March specifies much of the policy detail to be delivered through amendments to Chapter 2, Part V (agricultural property) in the Inheritance Tax Act 1984.
Proposed revisions
Legislation will be introduced in Finance Bill 2024-25.
The legislation in Chapter 2, Part V (agricultural property) of the Inheritance Tax Act 1984 will be amended so that the environmental value of land managed under an environmental land management agreement will be eligible for Agricultural Property Relief for deaths and other transfers of value from 6 April 2025.
Relief will be available for land managed under an environmental agreement with, or on behalf of, the UK government, devolved administrations, public bodies, local authorities, or approved responsible bodies.
As set out in the consultation response, this will repeal section 124C (land in habitat schemes) of Inheritance Tax Act 1984 in its current form, since it no longer applies.
Summary of impacts
Exchequer impact (£ million)
| 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | 2028 to 2029 | 2029 to 2030 |
|---|---|---|---|---|---|
| — | — | Negligible | Negligible | - 5 | - 5 |
These figures are set out in Table 5.2 of Autumn Budget 2024 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Spring Budget 2024.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
Several factors will affect decisions about how agricultural landowners and farmers choose to use their land, including financial factors related to the alternative sources of income available from different land use and management practices, which will vary in accordance with the quality and location of any specific land parcel. However, the expectation is that some individuals will now choose to enter into environmental land management agreements who would not otherwise have done so.
It is estimated that around 100 Inheritance Tax paying estates each year will be impacted. However, it is not expected to cause any large-scale additional work for those individuals affected.
This measure is expected overall to have no impact on an individual’s experience of dealing with HMRC as it does not change the process or how they engage with HMRC.
The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
HMRC collects data about the age, sex and marital status of the deceased. The impact of this measure on groups with protected characteristics is expected to be proportionate with the population of the estates of the deceased and trustees claiming Agricultural Property Relief and paying Inheritance Tax each year.
It is not anticipated that there will be impacts on those in groups sharing protected characteristics.
Impact on business including civil society organisations
This measure will have a negligible impact on less than 100 businesses per year. One-off costs may include familiarisation as the business may need to spend some additional time to make themselves aware of the requirements to become part of this scheme. There are not expected to be any continuing costs.
This measure is expected overall to have no impact on business’s experience of dealing with HMRC as the change does not affect the process or how they deal with HMRC.
This measure is not expected to impact civil society organisations.
Operational impact (£ million) (HMRC or other)
This measure will not require any major changes to HMRC staff resources or IT and digital requirements. It is not expected to lead to any additional Inheritance Tax returns being submitted.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through the monitoring of applications for Agricultural Property Relief received and communication with affected taxpayer groups.
Further advice
If you have any questions about this change, contact HMRC by email: assetsresidencepolicy@hmrc.gov.uk.