When an asset is attached to land, it becomes part of the land as a fixture and ownership will pass with the freeholder. This is all very relevant in the case of farms, where a structure like a grain silo is probably a fixture. In this article we are going to consider the situation where a farm has been incorporated with the land remaining outside the company, still belonging to the landowner. The company then incurs cost in adding an asset like a grain silo to the land.
It is quite common for there to be no written agreement between the landowner and the company concerning the company’s use of the land. It might cause some consternation to the company directors when they are told that they may not be able to include that new grain silo in the balance sheet. It can also give some tax headaches which we look at below.
The occupation of the land will usually be treated as a tenancy at will, which can come into effect by implication. This is not strictly a lease and has little or no protection or tenure for the company. It is often seen as a stepping stone to a more formal agreement.
Here is the article in Croner which discusses this further
If you ask most farmers in the UK what last year was like I think they would probably all use the word ‘wet’. Not just in terms of the amount of annual rainfall, but the patterns are showing more concentration. This was evidenced for 2023 in the State of the Climate report as follows: ‘March, July, October and December 2023 were all top ten wettest months in the UK monthly rainfall series from 1836; the first year this has happened for four separate months’.
This has created more pressure to stop flooding and various initiatives to control water flows. The Environment Agency published research on 12 February 2025 in which the section on rivers and flood plains contained examples of using rivers in the landscape to create control over water flow and to store water while at the same time creating good habitat.
For farmers and landowners this comes at a cost, and there are various ways that this can be funded. Some examples of the ways the land works can be funded are listed below.
Here is my article on Croner which discusses some aspects of this.
Many people listened in stunned silence as the chancellor announced that Agricultural Property Relief (APR) was going to be restricted for farms with effect from 6 April 2026.
In summary, every individual and most trusts existing on Budget Day will be given a £1m band to be shared between APR and Business Property Relief (BPR) for relief at 100%. Transfers qualifying for APR or BPR over £1m will qualify for 50% relief. Assets, such as land let on tenancies created before September 1995 which currently qualify for 50% relief will continue to enjoy the 50% relief, and this will not use up any part of that 100% band. An anti-forestalling rule acts to catch gifts made from Budget Day until the changes come into effect in 2026.
I am very proud to be listed as an author of the Environment Industry Commission’s (EIC) new publication on Nature and Biodiversity.
My part of this was in the legal and policy overview section examining the history and intent of UK and international policy moves to use Natural Capital as a framework to judge progress on moving towards better environmental behaviours. In England this has given birth to Biodiversity Net Gain, which is looked at in some detail.
I am starting to get a lot of enquiries about how income and expenditure for the various ecosystem service offsets are taxed. In this short piece I am going to restrict myself to Biodiversity Net Gain (BNG) introduced by the Environment Act 2021.
Biodiversity Net Gain was formally introduced to us in the Environment Bill which was laid before Parliament in January 2020, more than 4 years ago, but anyone who was awake would already have known this was coming as the direction of travel had been clearly signposted, not least in Gove’s 25 year plan. HMRC have therefore had a lot of time to get to grips with how it works and to establish the tax treatment of the various payments under the scheme.
I was pleased that they finally woke up to it in March 2023 when the consultation was launched after 3 years of sleeping, so I was excited to hear their thoughts. But the responses that HMRC give in their recent update on this have made me fall off my chair.
After a whole year of thinking about this all they can say can be summed up in the following two extracts, first from paragraph 2.6
The absence of accounting standards was raised as a key issue, given its potential implications on tax reporting.
Now from paragraph 2.7
There was a consensus amongst respondents that HMRC should issue guidance, including worked examples, to provide clarity on the tax treatment of the production and sale of ecosystem service units.
So..why not issue guidance? HMRC have now been sleeping on this for more than 4 years and I think we deserve better. I have clients who are making large scale investments without knowing the tax treatment of money being spent, and this is a massive failure of policy. This is a government supported investment and taxpayers are entitled to know how the various components are taxed.
HMRC are slow to provide help and advice, witness the difficulty in trying to talk to them, but very quick to charge penalties on hapless taxpayers confused about our labyrinthine tax system – hence the rather beautiful picture of the sleeping tiger above.
I have completed my latest quarterly update on Practical Farming: Poole published electronically by Croner. The main focus of this update is a new chapter on selling ecosystem services and some commentary on the Agriculture and Rural Communities (Scotland) Bill (ARCS) published in September.
In the tax profession we need to quickly come up to speed on ecosystem services. For this reason, I have included some definitions as this can be a confusing area for the accountant or lawyer when talking to the environmental advisers. The subtlety of meaning is important so I have tried to disentangle how the language and how the business structures work. I have been working closely with some of the country’s leading environment lawyers on trying to understand the language, and I hope I have captured their essences. I will be updating this chapter regularly as things change, and especially when the government make announcements following their consultation on the taxation of ecosystem services.
I have also been working closely with a national firm of environmental consultants and satellite data providers in designing a Biodiversity Net Gain product over the last couple of years, and this has led to all sort of interesting opportunities to consider how ecosystem services can fit into land management. More on this later when this becomes public, but I mention it how as I feel it has given me sufficient confidence to enable me to write the chapter on selling ecosystem services and especially the section on Biodiversity Net Gain.
The government commentaries published alongside ARCS demonstrated a strong commitment to Crofting so I have brought Crofting into the book. I find this approach to land use interesting, and I hope it might have an important part in the future of land use in the whole of UK, not just in Scotland. This did mean I had to add some commentary on other Scottish leases and flesh out Scottish land law a bit. I am not an expert in Scottish land law, and the differences between English and Scottish law are subtle. I hope I have struck the right balance.
The Bill also introduces new thinking on farm payments in Scotland with a new framework for how these will work from 2026, when the current holding legislation in Scotland expires.
As we draw closer to November, when Biodiversity Net Gain becomes a statutory part of the planning process, the component parts are starting to fall into place, sometimes with a resounding thunk. We have a new part of the jigsaw today, and there may be a VAT surprise for some.
Yesterday saw a release by Defra of a significant update on where we are with these rules. Additional funding has been allocated and some new information has been provided about how the statutory credits will be valued. This information is available here.
The cost starts at £42,000 per credit for units of habitat of low distinctiveness and increase up to £125,000 for units representing habitats of high distinctiveness but with a special high price of £650,000 per unit for high distinctiveness lakes. Linear habitats have a value of £44,000 per credit for Hedgerow and £230,000 per credit for river.
And a confirmation that these are taxable and standard rated for VAT, so VAT will be added to the invoice for statutory credit purposes.
Spatial Risk Multiplier
A “spatial risk multiplier” is applied when offsetting units offsite. This is a mechanism to motivate new habitat creation close to where the development is. It is set at two when using a statutory credit.
It is important to remember that the statutory credits are only for when offset is not available either on site which is usually preferred, or offsite in the local area. The priorities will be determined by local nature recovery strategies, most of which has not yet been published. Indeed, experience suggests that these might not be available for another year or so in some cases, a long time after the rules come into place.
A lot has been written about biodiversity net gain so I don’t feel the need to add to this here, but instead I will run through a very simple example to show how this works in outline.
Example
A developer is developing on 3 ha of modified grassland which is of low distinctiveness, but moderate condition. There is no strategic significance multiplier (which could increase the amount of units by up to 15%) in this case.
Assuming a packing ratio of 20 houses per hectare and a selling price of £200k per house. The expected total sale proceeds will be £12m.
Assuming the habitat will all be destroying as part of the development process, the units required are as follows
Distinctiveness low. Units per hectare
2
Moderate condition – multiplier
2
Habitat units per hectare
4
Credits required to offset this with 10% gain
4.4
Three hectares
13.2
Spatial risk multiplier
2
Total units needed if using statutory credits
26.4
Price per unit
£42,000
26.4 units
1,108,800
VAT at 20%
221,760
Total
£1,330,560
This represents a substantial fraction of the total sale price of £12m.
VAT
As can be seen in the example above, there might be significant amounts of VAT paid when offsets are made using statutory credits. It will therefore be important to consider what VAT outputs there will be in respect of the land.
As a general rule for building projects the first sale of a major interest in land in brackets (freehold or lease over about 20 years) will give rise to a zero rated output, and therefore this will be available as input tax.
If land is being let to a tenant the rent will be exempt and unless the land is opted to tax input tax will be restricted. Even with an option to tax, residential lettings will often be excepted from the option, so we are back at the starting point. However, there are ways of reducing VAT on building costs on that can be explored. Specialist VAT advice should be taken on this, and I will be happy to point you in the right direction for this.
We have added a page setting out Anti Money Laundering procedures. This is now part of the legal documentation section on the Our Services page, and will be referred to in all engagements. The page can be seen here:
My book on farming is published today on Croner i.
To me, farming is the most important and interesting trade. It is about how we feed our people and look after the world and its other inhabitants. Climate change is upon us, and many of the possible solutions to this involve farmers. I try to provide a guide to help professionals advising farmers on all this, and I hope over the years it will become comprehensive.
This and other large projects have taken much of my spare energy over the last year. I intend to start posting articles again from time to time, so be prepared for more opinionated articles coming soon. I have recently written for Croner i about the capital tax problems that farm tenancies create and how recent announcements may alleviate these.
From the business point of view, I have sent out invoice number 100 this month, showing strong growth for Poole and Co and I think I can safely say the future is assured for the business, now in its third year.
With continuing inflation I am putting my hourly rate up to £70 (plus VAT), which is halved for trusteeships and directorships. I have limited ability to take on new clients. Therefore I am imposing a minimum fee of £500 plus VAT for new clients, and will not take on work with a statutory time limit within 60 days. My minimum fee for existing clients will remain at half the hourly rate – ie £35 plus VAT.
