Delivering 30by30 on land in England: What should landowners be considering?

The government made a commitment to protect 30% of the UK’s land and sea by 2030, adopted globally at the UN Biodiversity Summit COP15 in December 2022. With Defra recently announcing the desire to work collaboratively with landowners to meet the “30by30” target, the question is what implications this will have for participating landowners, particularly in the field of taxation, where much uncertainty remains.

HMRC’s consulted on the taxation of environmental land management and ecosystem service markets last summer and officials continue to review the replies and comments that they’ve received.

The consultation, which was announced in the 2023 Spring Budget, looked at a range of uncertainties that have arisen out of a desire for land use and management to become more environmentally friendly. Its outcomes could have a direct impact on farmers, landowners and the owners of landed estates. 

Changes afoot to Agricultural Property Relief?

A key part of the consultation was a review of whether Agricultural Property Relief (APR) from Inheritance Tax (IHT) is fit for purpose considering the drive towards environmental changes, and whether it should be extended to land that’s being used for environmental improvement rather than purely for agriculture. The current rules apply the relief only to the agricultural value of property, which is a question of fact and degree decided on a case by case basis. Land taken out of agriculture to meet environmental aims for an extended period could therefore be at risk of not qualifying for APR.  Without this tax relief, the value of this land could attract IHT on the owner's death (or on any other incidence of IHT charge) at up to 40% – a serious financial setback for any farmer or landowner, potentially necessitating a sale to fund the tax.

Ultimately, the consultation sought to explore if landowners are being disincentivised for tax reasons from taking steps to improve the biodiversity, land habitat and environmental status of their land. The overriding feeling is that reform is needed here to provide landowners with suitable incentives to get on board with public policy objectives and turn land towards more environmentally friendly uses. Certainty in particular is much needed and it is hoped that sensible outcomes will be achieved. Farmers and owners of landed estates are very much front and centre of this important national issue, and in our experience do want to support environmental projects.

The Rock Review and APR recommendations

The government also used this consultation as an opportunity to explore in more detail the recommendations in the Rock Review, undertaken by Baroness Rock and published in October 2022, of tenant farming in England, which had a similar aim of encouraging landlords and tenants to act in a way which would be conducive to environmental improvements to their land.   One suggestion to emerge was potentially to restrict the application of 100 per cent APR to tenancies of eight years or more, the idea being that longer term tenancy agreements would encourage tenants to enter long term environmental agreements.

The Rock Review also raised concern about tenant farmers frequently facing restrictive clauses in their tenancy agreements that prevents them from taking actions such as creating wetlands and more recently preventing tenants putting land into Environmental Management Schemes or private schemes. These, it argued, were driven in part by the structure of the current tax environment which benefitted landlords to include them.

Clarification on the tax treatment of ecosystem service markets

There are now robust market mechanisms for investing in nature markets and ecosystem services, including established schemes like the UK Woodland Carbon Code, the UK Peatland Code and Biodiversity Net Gain. This is a fast-growing area as new standards and mechanisms are developed and piloted, which aim to attract and support investment in a range of ecosystem services. This can be done by the production and sale of units in those schemes and services, which pay potentially lucrative sums to the landowner. It is therefore an area of great interest to owners of land, particularly large landowners like landed estates. However, for early adopters it comes with not insignificant risk, in part due to uncertainties around the accounting and tax treatment. 

The consultation sought evidence to understand how this market is operating in practice and the interaction with taxation, which has become more and more uncertain as nature markets have grown. The impact on taxation is potentially far reaching, covering VAT, corporation tax, income tax, capital gains tax, inheritance tax and stamp duty land tax. There were no outcomes signposted, but if greater certainty can be achieved, that is likely at least to be a step forward.

What action should I take to be ready for tax changes to environmental land management?

Obviously, the government is still only at the consultation stage and has not yet announced when its recommendations and any outcomes will be published. However, with the Spring Budget 2024 announced taking place on 6 March there is always the prospect of changes being announced then.

To continue enjoying APR, as the owner of a landed estate, you should, for the time being, think very carefully before ceasing an agricultural activity in favour of environmental land management as it might not qualify for this (or other) tax relief. That could have major implications for succession plans, which should be factored into the thought process.

In light of the potential requirements for longer tenancies, you should be checking whether you would qualify for APR on your tenant farming if the rules do change and considering what steps you would need to take in order to comply with any new regulations. As is usually the case with consultations, it’s important for those with landed estates to watch and wait for now but be ready to react to changes as soon as they come into effect.

Most importantly, taking expert advice will mean that you’ll be well placed to act quickly in response to any changes and that you continue to benefit from tax relief while improving the biodiversity and sustainability of your land, and preserving it for future generations.

FURTHER INFORMATION

For further information on the issues raised in this blog, please contact a member of our private client team.

ABOUT THE AUTHORS

Charles is a specialist trusts and estate planning lawyer, and leads the firm's Landed Estates practice. His focus is advising families on their succession and estate planning generally, and his strength lies in the technical aspects of private client work, particularly trust law and capital taxes. He also has specific expertise in guiding the succession and management of Landed Estates, their diverse businesses and structures, including as a trustee himself of a significant Estate. He co-ordinates advice from around the firm to ensure a seamless service for his clients, working closely with our other expert lawyers in our Corporate Commercial, Real Estate, Dispute Resolution and Family teams in particular.

Lydia is a trainee solicitor and is currently in her third seat with the Private Client team, having previously completed seats in Family and Divorce and Real Estate and Construction. Lydia’s current work covers Wills and Lasting Powers of Attorney, lifetime succession and estate planning, the administration of estates (probate) and Court of Protection work.