In ICAEW REP 55/23, ICAEW’s Tax Faculty notes that there is a lot of uncertainty regarding the application of existing tax rules to environmental schemes. This may lead to inadvertent non-compliance, or in some cases may deter landowners from joining such environmental schemes.

The faculty also considers that any tax reliefs or incentives introduced for environmental schemes must be designed in line with the UK’s wider objectives and decarbonisation strategy. Tax reliefs may encourage landowners to pursue more environmentally friendly land management initiatives. However, reliefs may also attract new investors. It is therefore important that the objective of any policy change is clear and complements the wider strategy for agricultural and land use.

Environmental taxes are a new and evolving area of tax. While practical experience of arrangements is currently limited, the importance of this issue is only going to increase as sustainability goals rise higher on people’s list of priorities.