Farmers need to carefully consider to what extent they enter new environmental schemes after inheritance tax relief was extended to such projects by the Chancellor, a rural property expert has warned.

In his Spring Budget, the Chancellor Jeremy Hunt announced that Agricultural Property Relief (APR), which allows inheritance tax to be reduced when a farmer passes on agricultural land after death, will also apply to land used for environmental schemes.

Many have been awaiting clarification of the policy to consider to what extent they use schemes such as the Sustainable Farming Incentive (SFI).

But Carrie Marshall, Agribusiness Consultant at leading consultancy Fisher German, has said farmers need to have a balanced approach between environmental projects and land devoted to food production.

“With the phasing out of BPS, farmers need reliable sources of income more than ever,” she said.

“The SFI scheme is a great new way for farmers to have a steady stream of cash coming into their businesses, but some were holding back on large environmental schemes because APR may not have applied to that land.

“The Chancellor has clarified that land in environmental schemes will be eligible for APR, and although a tax advisor should still be consulted, many farmers may now be looking to increase the area of land they are planning to enter a scheme.

“However, it is crucial that farmers take a balanced approach. It’s important to remember that the SFI scheme isn’t written in stone – it’s a government policy that could be taken away after the next election or funding could be reduced at any time. Farmers should be wary about committing their whole farm to an SFI scheme and selling surplus machinery.

“Additionally, prices for commodities like wheat can be highly variable with the war in Ukraine and the price of fuel all contributing to this uncertainty.

“One year, crops may bring in lots of money, while in other years, prices may drop. Having unproductive land used for environmental schemes that bring in steady cash, while saving more productive land for crop growth is often the best strategy to balance the risk.

“And while environmental schemes can bring in SFI payments, there can often be high costs involved with some of the options. It is important to look further than just the headline income figure.

“There is not a one-size-fits-all solution that maximises value, so we would encourage farmers to seek expert advice before starting a new environmental scheme on their land.”

Aside from the monetary value, Carrie felt it was important that government policy encourages farmers to devote land to food production and to farm innovatively and efficiently, such as embracing technology to drive down some of their costs.

Considering the clients that Carrie advises, she added that there is a wide range of efficiency and productivity across farming businesses, and when undertaking benchmarking analysis, there is a clear correlation between results and efficiency.

She said: “Our country needs to strike the right balance between growing our own food and protecting our environment, and farmers clearly play a vital role in achieving both of these goals.

“While incentives to care for the environment are undoubtedly important and can now provide a solid income for farmers, future governments must ensure grants relating to efficient food production and equipment upgrades are not overshadowed in the process.”