Both the NFU and NFU Cymru have submitted separate responses to the government's consultation following a call for evidence during which member feedback was gathered to help feed into the response.
The responses are summarised as follows:
Tax uncertainty in relation to ecosystem service markets
We have pointed to how this is a developing area with many members at a relatively early stage of looking at any new opportunities.
However, we have suggested that those actively looking at entering into agreements are raising areas of uncertainty in relation to different aspects of the tax treatment. These include:
- any impact on their Inheritance Tax position;
- how agreements are treated for VAT purposes;
- how income and expenditure will be matched for income tax purposes and treated;
- and if income derived from woodlands will be exempt.
We have also highlighted that there are some uncertainties over whether some activities may fall outside of the agricultural exemption from business rates. We have suggested that HM Treasury and HMRC work closely with the accounting and tax professional bodies and agricultural representative bodies such as the NFU, to reach agreement on the accounting treatment in the coming weeks with a view to HMRC then providing clear guidance on the tax treatment so that those entering in to these markets understand both the risks of the agreement they are signing up to and how it will be treated for tax purposes.
Potential to expand Agricultural Property Relief to ELMs and beyond
The majority of members who contributed their views suggested it is essential to extend APR to all options within ELMs.
This has informed our view and the NFU has stated that this is necessary to prevent confusion or concerns stopping farmers from accessing these and to ensure they can participate as widely as possible, whether they are a tenant or an owner occupier, without fear of adversely affecting the Inheritance Tax position of the owner.
In relation to potentially extending APR still further to private market agreements, we have recognised HMRC鈥檚 suggestion that where a business continues to mainly consist of trading activities, such as a farm business with only the smaller part of its land entered into a private market agreement, then Business Property Relief will be available to relieve any non-agricultural value of the wider farm business.
We also note that HMRC has confirmed that certain existing private market schemes are accepted as being a trading activity in their own right, and therefore qualifying for Business Property Relief. We have called for HMRC to undertake a similar evaluation of other types of agreements, such as Nutrient management and Biodiversity Net Gain, to clarify if Business Property Relief would apply to give certainty to farmers considering these agreements that entry will not adversely affect their Inheritance Tax position.
However, given that the majority of our members felt it was essential to balance agricultural production needs with environmental delivery, and to reserve the use of more productive land for agriculture, we have questioned if simply extending APR in this way would be in the interest of farmers and the government's overall objectives. If this allows external investors with no connection to farming to access relief without having to consider the impact on agricultural production, then we question if it could potentially undermine farmers access to land and their ability to produce.
皇家华人believes that it is essential that any further changes to APR take account of the government's Food Strategy objective to at least maintain the current level of agricultural production.
Rock review proposal
皇家华人agrees with the aims of improving tenant farmers' security, improving their ability to invest in the land, and giving them better access to longer term environmental schemes.
We have also said that we continue to support an earlier government objective to maintain or increase the amount of land under tenancy. As a result, whilst supportive of the aims of the Rock Review objectives, we have concluded that it is essential that the government first model the proposed change to APR.
皇家华人believes it is essential to understand the extent to which this is likely to result in longer tenancies and the extent to which land may be lost from the tenanted sector as a direct result, before assessing if it is in the interest of active farmers renting in some or all of their land to go ahead with the proposal.
You can read the responses in full at: NFU submission to the consultation on the taxation of environmental land management and ecosystem service markets
NFU Cymru response to the taxation of environmental land management and ecosystem service markets
