Nature-friendly farmers face £120m yearly bill without IHT reform

Farmers and landowners who want to create new habitats for nature face being hit with an annual bill of around £120m unless inheritance tax (IHT) rules are changed, new analysis has found. 

Most farmland, including farm business tenancies, is eligible for 100% relief from IHT through agricultural property relief (APR), while 1986 Agricultural Holdings Act tenancies attract 50% APR.

However, any farmland turned into woodland or wetlands under future schemes could become liable for IHT at 40% if it does not attract APR. 

See also: Tax consultation response calls for natural capital payment changes

Using data from the RSPB conservation science department, the Energy and Climate Intelligence Unit (ECIU) and Strutt and Parker reached the £120m figure by modelling the existing tax liabilities for English landowners and farmers if they created the habitats needed to meet UK climate targets. 

Jason Beedell, rural research director at Strutt and Parker, noted loss of tax relief was one of the reasons most frequently cited by farmers and landowners for not engaging in woodland or other habitat creation schemes. 

“This is particularly the case for landowners with tenants,” he said. 

“Equalising the tax treatment of farmland with newly created habitats will ensure this major barrier is removed.”

Mark Coulman, national chair of the Tenant Farmers Association (TFA), echoed these concerns.

“Too often, our members are blocked from applying for green farming schemes by their landlord, who’s in fear of their tax bill going up,” he said.

A Treasury and HMRC consultation including questions on the extent to which the present scope of APR represents a barrier to the creation of new habitats closed on 9 June 2023.

The government will outline its response in due course.

Are you, like many other farms, missing out on tax claims for R&D?

If you’re a limited company, you could be eligible for tax credits if you’re carrying out R&D on your farm. For more information and to find out if you’re eligible visit our R&D tax credits page.

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