Farmers beware of the potential disastrous Inheritance Tax implications!
Since Brexit, valuable farming grants and subsidies, which many farming businesses replied upon, have seen a steady decline with a new focus on environmentally beneficial uses of farmland coming into focus under the ELMS scheme.
Financial incentives for schemes such as re-wilding, carbon sequestration, and the protection of wildlife, habitats, river, and streams have been taken up by many farmers to boost their finances in the short-term however, there comes with this a haphazard, yet potentially ruinous consequence effect on Inheritance Tax (IHT).
Land set aside for ELMS schemes may lose any APR relief as a consequence of the change of use. In a “worst case scenario”, the full value of the land may be subject to 40% tax on the death of the landowner. This could have potentially devastating financial repercussions for famers and their families.
There is suggestion that the Government will only take action if there was evidence that farmers were failing to take up environmental schemes due to IHT uncertainty, however, without legislative change to bring IHT in line with the new environmentally friendly schemes, cases of forced sales of farmland to generate cash to pay the tax, may well arise.
Whatever the government decides, there is a need for certainty about when APR will be available and when it will not. Farmers should not be forced to choose between adopting new land uses for immediate financial benefit under the ELMS schemes if the long-term result will see loss of APR, with no equivalent relief available.
If you are considering entering the ELMS scheme and would like to discuss potential IHT consequences, please contact one of our Agricultural Solicitors to discuss your concerns.
Author: Hayley Barker (Trainee Solicitor) – to learn more about Hayley, you can view her profile here.
DEFRA, Policy Paper (21 June 2023): https://www.gov.uk/government/publications/environmental-land-management-update-how-government-will-pay-for-land-based-environment-and-climate-goods-and-services/environmental-land-management-elm-update-how-government-will-pay-for-land-based-environment-and-climate-goods-and-services
