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Taxation of environmental land management and ecosystem service markets

The recent Budget saw the Government issue their response on the consultation and call for evidence launched in last year’s Budget about the taxation of environmental land management and ecosystem service markets.

Part 1 of the publication was a call for evidence on the tax treatment of the production and sale of ecosystem service units. The aim of this was to understand the commercial operations and the areas of uncertainty in respect of taxation.

Part 2 of the publication was a consultation about the scope of agricultural property relief (APR) from inheritance tax as it’s a potential barrier to some agricultural landowners and farmers making long-term land use change from agricultural to environmental use. Part 2 also sought views on a recommendation in the Rock Review of tenant farming in England to restrict the application of 100 per cent agricultural property relief to longer tenancies of eight or more years.

The Government’s headline response was as follows:

  • establish a joint HM Treasury and HMRC working group with industry representatives to identify solutions that provide clarity on the taxation of ecosystem service markets where existing law or guidance may not provide sufficient clarity
  • extend the existing scope of agricultural property relief from 6 April 2025 to land managed under an environmental agreement with, or on behalf of, the UK government, Devolved Administrations, public bodies, local authorities, or approved responsible bodies
  • not to restrict agricultural property relief to tenancies of at least eight years  

The extension of APR to environmental schemes is welcome but there will be a delay in knowing what the ‘day-to-day’ taxation implications will be as HM Treasury and the HMRC working group need to get their heads together.

The devil is usually in the detail but the Government’s response appears to outline that, whilst further guidance for most matters relating to APR will be outlined in due course, any burdens of providing evidence will not be onerous, for example, when showing land was previously used for agricultural purposes prior to change of use.

While we wait for further details to be released, it’s pleasing that the Government and HMRC are listening to the concerns of farmers and landowners in what is a rapidly changing industry.

We were delighted to be able to contribute to the consultation process and also potentially being part of the HMRC working party to provide further clarity on the more ‘day-to-day’ aspects.

A link to the Government’s full response is here:

Need help?

If you’d like to discuss this in more detail, please get in touch with your usual Larking Gowen contact. You can find contact details in the Our People section of our website. Alternatively, call 0330 024 0888 or email

Bruce Masson


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Larking Gowen


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