Tax
Reducing inheritance tax pressure on a renewable lease
Land generating renewable energy lease income is generally treated by HMRC as a passive investment rather than a trading business — which usually means it doesn't qualify for Agricultural Property Relief or Business Property Relief.
That leaves the asset exposed to full inheritance tax, currently 40%, on death. Gifting land seven years before death can mitigate IHT, but that typically triggers capital gains tax on the transfer — even where no cash has actually changed hands.
Why this matters in practice
A renewable asset valued at several million pounds could create a significant IHT liability on death, or a real capital gains tax liability if transferred as a lifetime gift. Without planning, inheritors can face a substantial tax bill with limited liquidity to pay it.
How capitalising can help
Capitalising part of the lease income can generate the liquidity needed to fund a tax liability, without a distressed sale of the whole project at an unfavourable time. Only the amount needed to cover the liability has to be capitalised.
This is general information, not tax advice. Speak to your accountant or tax adviser about your specific position.