Taxation and environmental land management

With England’s farming industry in the middle of the Agricultural Transition, schemes are being expanded to pay farmers and land managers to provide environmental goods and services alongside food production.

The devolved nations have announced similar schemes, and one question on many people’s lips has been "Will land entered into environmental schemes or ecosystem services still qualify as agricultural land for taxation purposes?".

The uncertainty surrounding tax obligations was seen by many farmers as a barrier to uptake or participation in both private and public environmental schemes. With UK government keen to drive uptake in the English SFI scheme in order to reach its environmental targets, a call for evidence was launched to provide some clarification for farmers.

HMRC and the Treasury’s response to the consultation has now been published.

In summary, the Government has decided:

• To establish a joint HM Treasury and HMRC working group with industry representatives to identify solutions that provide clarity on the taxation of ecosystem service markets where existing law or guidance may not provide sufficient clarity
• To extend the existing scope of agricultural property relief from 6 April 2025 to land managed under an environmental agreement with, or on behalf of, the UK government, devolved administrations, public bodies, local authorities and/or approved responsible bodies
• Not to restrict agricultural property relief to tenancies of at least eight years

AHDB welcomes this clarification and will be monitoring the activity of the working group to keep our levy payers fully informed of any proposed changes going forward.