New rules, new opportunities: April 2025 changes to Agricultural Property Relief

From 6th April 2025, the first wave of Labour’s inheritance tax reforms to Agricultural Property Relief (APR) were introduced, extending the scope to environmental management agreements. These agreements replace the previously defined ‘Land in habitat schemes’ under section 124C of the Inheritance Tax Act 1984.

What qualifies for APR?

Defined in the IHTA 1984 section 115(2), “agricultural property” means any agricultural land or pasture. It includes woodland and any building used in connection with the intensive rearing of livestock or fish if the woodland or building is occupied with agricultural land or pasture and the occupation is ancillary to that of the agricultural land or pasture. It also includes cottages, farm buildings and farmhouses, together with the land occupied with them, as are of a character appropriate to the property.

APR is defined in the IHTA 1984 section 116(1), where the whole or part of the value transferred by a transfer of value is attributable to the agricultural value of agricultural property, the whole or that part of the value transferred shall be treated as reduced by the appropriate percentage.

What are Environmental Management Agreements?

The Finance Act 2025 section 61(6) defines such Agreements as legally enforceable agreements between (1) an occupier or other person with a right in land and (2) a public authority which is entered into for the purpose of protecting, restoring or enhancing the natural environment, or natural resources, of land or water. In practice, this requires the land to be used and managed in a way that would prevent it from being agricultural property occupied for the purposes of agriculture.

Land only

Under section 61(1), land is to be treated as agricultural property occupied for the purposes of agriculture if:

(a) the land was agricultural property throughout the period of two years ending with the day on which it became subject to an environmental agreement, and

(b) since that day, it has been used and managed by the agreement (irrespective if the agreement is still in place).

Land and buildings

Under section 61(2), a building occupied with land is treated as agricultural property occupied for the purposes of agriculture if:

(a) it is used in connection with the use and management in accordance with the environmental management agreement (whether the agreement still is in affect) and if of a character appropriate to the land,

Either

(b) (i) it was built for the purpose of being used in connection with that use and management (whether the agreement is still in affect), or

(ii) It was occupied with the land immediately before the land became subject to the environmental management agreement and was of a character appropriate to the land as it stood at that time, and it is not otherwise agricultural property occupied for the purposes of agriculture.

(c) it is not otherwise agricultural property occupied for the purposes of agriculture.

Conclusion

The new rules effective from 6th April 2025 offer landowners and tenants the chance to benefit from the expanded scope of APR through Environmental Management Agreements. For properties valued more than £1m, this year is crucial for reviewing estate planning to secure the maximum benefits.

Failing to act could lead to:

• Higher tax bills: Properties more than £1m will face a reduced APR rate of 50% from April 2026.

• Missed benefits: Loss of dual benefits from environmental agreements and tax relief.

• Financial strain: Potential need to sell assets to cover increased tax liabilities.

Contact our team today to ensure any proposed Environmental Management Agreements are appropriate to your circumstances as well as all other asset protection enquiries.