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.
This is according to property experts at Carter Jonas, who say that farmers are keen to enter the UK's environmental agreements within the natural capital market.
However, they need concrete guidance on how this land – and the income from the schemes – will be viewed by HMRC.
Alongside the spring budget, the government announced that a working group would be created to clarify the taxation of ecosystem markets.
But 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.
“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.”
In relation to the inheritance tax treatment of land, he says: “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 this will include SFI and Countryside Stewardship, adding that it is 'encouraging' given some of farmers have followed this route to replace some of the income being lost by reductions in the Basic Payment Scheme.
“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.”
Natural capital lead at Carter Jonas, David Alborough, points out that progress is being made on the development of accreditations for high-integrity nature markets via their Nature Investment Standards Programme.
He says: “The 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.
“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."
