Pre-Budget planning for landowners: navigating APR, BPR and natural capital

With the proposed changes to Agricultural Property Relief (APR) and Business Property Relief (BPR) reaffirmed by the Government’s July 2025 draft legislation, the reforms mark a significant turning point for landowners. For those making long-term commitments to natural capital on their land, whether entering into Environmental Land Management schemes, biodiversity net gain or carbon sequestration projects, pre-budget planning is essential to consider the impact of the tax changes taking effect in April 2026 to ensure their succession planning remains fit for purpose.

Upcoming changes to APR/BPR

From April 2025, APR was extended to land managed under approved environmental agreements. For the first time, land taken out of agricultural production for environmental purposes could maintain its Inheritance Tax (IHT) exempt status (subject to meeting the relevant ownership tests). This marked a significant expansion of the relief beyond traditional farming activities to natural capital projects, including land used for biodiversity enhancement, carbon offsetting and rewilding projects but crucially, does not apply to private environmental arrangements.

For many landowners and farmers whose business is structured to benefit from business property relief (BPR) the test remains whether or not the land forms part of a composite trading business. Any income from natural capital projects generally qualifies as “investment” income and depending on the size of the overall farming business, potentially undermines the overall claim for BPR.

However, under the new rules that are due to effect from 6 April 2026, the combined value of assets that qualify for 100% APR and BPR is to be capped at £1 million per individual and trusts (created after 30 October 2024). Any value above the cap will qualify for 50% relief, effectively a 20% rate of tax for agricultural assets and business property. Importantly for succession planning, the allowance cannot be transferred between spouses.

Implications for natural capital projects

Given the forthcoming restrictions on the availability of APR/BPR reliefs, natural capital projects with significant income generating opportunities may become more attractive to landowners looking to maintain the continued availability of tax relief on their landholdings and generate a “war chest” from which to fund any IHT liabilities. Concerns around entering into sometimes 30-plus year commitments to a change in the land use may become a lesser concern to landowners if the natural capital cash flows in some way compensate for the loss of IHT reliefs.

Pre-Budget considerations

In light of the changes to APR and BPR, landowners should take proactive steps to safeguard their reliefs and optimise their estate structures through planning before 6 April 2026.

In order to achieve this, landowners should consider:

• aligning natural capital commitments with succession planning strategies to preserve APR/BPR eligibility
• reviewing their current wills and trust structures to ensure that they remain tax efficient under the new APR/BPR framework and the £1 million allowance is fully utilised as between spouses
• establishing or restructuring pre 30 October 2024 trusts in order to benefit from the separate trust allowance
• utilising lifetime gifting of qualifying APR/BPR assets to secure the current reliefs, to take advantage of the seven-year IHT exemption for potentially exempt transfers
• life insurance to cover the IHT risk on any lifetime gifts.