IHTM25252 - Other relevant business property: Agri-environment schemes

Subsidies and grants to support farming and the wider environment are currently undergoing some major changes. While farmers and landowners are still being encouraged to produce food and other products in a sustainable way, a greater emphasis is being placed on their role in maintaining and improving the natural environment. In addition, there are new markets for them to exploit by using their land to generate credits to off-set the production of carbon and other gases connected to climate change.

You may see more cases where the way agricultural land has been farmed has changed, perhaps less intensively, or agricultural production has ceased altogether. For example, the land may have been planted with trees which can be used to sequestrate carbon and generate carbon credits which can be sold by the farmer/landowner.

Land which is no longer being used for the purposes of agriculture (IHTM24061) is very unlikely to qualify for agricultural relief (IHTM24011), unless, for example, it is woodland that can be shown to be ancillary to other agricultural land (IHTM24032).

However, depending on how it is used as part of a person’s business, it is possible the land may still qualify for business relief (IHTM25131) if the overall business is not one of wholly or mainly making or holding investments, IHTA84/S105(3).

If the former agricultural land is being used under the Woodland Carbon Code (WCC) or Peatland Carbon Code (PCC), note the guidance at IHTM25253.

You will need to look at all the activities of the business as set out at IHTM25265 when deciding whether the business or company shares will qualify for business relief.

For example, Donald owns a 300-acre farm used for raising cattle and growing root crops. He decides to remove 80 acres of the land from agricultural production and enter it into an agri-environment scheme for which he receives grant payments. As the 80 acres is no longer being used for the purposes of agriculture it will not qualify for agricultural relief. However, as Donald’s business is still mainly one of farming along with the receipt of income from the agri-environmental scheme, the land will qualify for business relief as it is used in a business that is not wholly or mainly one of making or holding investments.

Note that if Donald was instead a non-farming landowner and leased the farm to a tenant, business relief would not be due as the provisions of IHTA84/S105(3) would apply (IHTM25261). Agricultural relief would be restricted to the land still being used for the purposes of agriculture.

It is likely that more guidance will be provided as the various agri-environment schemes are developed and rolled out further.