Clarity over the tax treatment of land put into environmental schemes must come quickly for farms and estates to enable long-term plans to be put in place.   

Carter Jonas says its clients are keen to enter environmental agreements within the natural capital market including the Countryside Stewardship Scheme (CSS) and Sustainable Farming Incentive (SFI). However, they need concrete guidance on how this land – and the income from the schemes – will be viewed by HMRC. 

Income 

Alongside the spring budget, the Conservative government announced that a working group would be created to clarify the taxation of ecosystem markets. Carter Jonas Partner Mark Russell says urgency is required.  

"Farmers are currently planning for the next five to 10 years and are being encouraged to think about the next one or two generations in these schemes. They need answers as soon as possible," said Mr Russell, who jointly leads on natural capital for the firm.  

"The working group will no doubt explore how payments by companies to farmers to undertake biodiversity enhancement projects will be treated and whether different elements will – as we anticipate – be taxed as income and capital.  

"What we, and all our clients, want is for the working group to present its conclusions as soon as possible."   

Inheritance Tax 

In relation to the inheritance tax treatment of land, Mr Russell said: "We had hoped the government would specifically bring biodiversity net gain schemes within the framework of Agricultural Property Relief (APR), but it is not clear whether this is the case or not."

From 6 April 2025 land managed under an environmental agreement (subject to some conditions) will fall within the scope of APR. Mr Russell says he takes this to include SFI and Countryside Stewardship and that it is "encouraging", given some of the firm's farming clients have followed this route to replace some of the income being lost by reductions in the basic payment scheme.  

Mr Russell added: "The government has also confirmed it will not change the qualifying length of tenancy for APR, which we view as positive. Our evidence suggests that setting a longer minimum lease term would have had the unintended impact of reducing the area of land offered into the let land market." 

Mr Russell's fellow natural capital lead, David Alborough, pointed out that progress is being made by government and the British Standards Institute on the development of accreditations for high-integrity nature markets via their Nature Investment Standards Programme.  

"The real trick to drive forward positive climate change in the UK is to provide a reliable and accreditable series of nature-based solutions that corporate investors, including infrastructure providers, can invest in with confidence," Mr Alborough said.  

"Projects within the UK have the benefit of being visible to corporate investors and with the right approaches to landscape change, longevity of land management and best practices in the handling and management of the associated funds there is a real opportunity to move the dial on the scale of investment (from hundreds of millions of pounds to billions) and the scale of landscape change to incorporate biodiversity, nutrient, carbon and societal benefits.  

"There is a lot to play for in this market and Carter Jonas is ready and able to link corporate, infrastructure and financiers to land at scale using our long-term connection with the management of land." 

Mark and David can be contacted in the firm's Cambridge office on 01223 346628.