Carbon code land will qualify for Business Property Relief

Land in the UK used to generate carbon credits under the Woodland Carbon Code and the Peatland Code will qualify for Business Property Relief for Inheritance Tax.

John McArthur, Head of Tax and Co-Head of Private Finance at Gillespie MacAndrew, says that uncertainty has been a barrier to committing to carbon capture projects. However, he says that, “HMRC have now clarified their position and updated their Inheritance Tax Manual, confirming that land entered into the UK Land Carbon Registry will be treated as trading activity, and will therefore in principle qualify for BPR.”

Both the Woodland Carbon Code and the Peatland Code are designed to help businesses who want to use carbon credits as a tool to help manage their carbon emissions.

Mr McArthur says, “Farmers and landowners have sought to capitalise on [carbon credits] by exploring different ways of using their land to generate carbon credits that they can sell to other businesses to offset their carbon emissions or, indeed, to use them to reduce their own emissions.”

The Woodland Carbon Code and the Peatland Code are designed to help facilitate this change of land use. For both schemes the project must be registered before planting or restoration begins. Registration requires a calculation of the total carbon sequestration/retention expected. Once validated, Pending Issuance Units (PIUs) are issued for the carbon capture expected over the entire life of the project.

Mr McArthur says, “Subject to the woodlands/restored peat performing as expected the PIUs will hopefully be verified and converted into Woodland Carbon Units (WCUs) (or Peatland Carbon Units (PCUs)) which can be used to offset carbon emissions. Both PIUs and WCUs (or PCUs) can be sold to third parties, but only WCUs or PCUs can be used for offsetting.”

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