Spring Budget: Certainty on ELMs at last?

A significant number of clients are collaborating with their neighbours to bring sites forward for the Landscape Recovery scheme (one of the ELMs schemes). We are also advising on a range of ad hoc habitat schemes from granting leases to habitat “banks”, to joint ventures that rely on a mixture of public and private sector funding, as well as section 106 BNG agreements and nutrient neutrality solutions required to enable development.

There has been uncertainty around the impact that putting land into environmental schemes will have on tax reliefs, particularly for inheritance tax. Will the land still be regarded as agricultural and/or trading, or as an investment asset? The Government consultation on the taxation of environmental land closed in June 2023 and the following, long-awaited, announcement has been made in today’s Budget:

“The Government will extend the existing scope of agricultural property relief from 6 April 2025 to land managed under an environmental management agreement with, or on behalf of, the UK Government, Devolved Administrations, public bodies, local authorities, or approved responsible bodies. The Government will also establish a joint HM Treasury and HMRC working group with industry representatives to identify solutions that provide clarity on the tax treatment of ecosystem service markets.”

This implies that land subject to an environmental management scheme may not currently qualify for agricultural property relief. Further, if the land is not regarded as agricultural until April 2025, will it be a further 2 or 7 years (depending on whether the landowner or a third party is in occupation) before it qualifies for agricultural property relief? No mention has been made of whether such land is capable of qualifying as a trading asset for business property relief. It seems we will need to continue waiting for further clarity.

For those looking to take substantial areas of land out of arable production or grazing, the partial clarity on the tax treatment may, contrary to what I suspect the Government intended, continue to hold them back.