The Future of Renewables
on Rural Estates
Investing in renewables is an effective way to diversify a portfolio.
Whether it’s a country house, residential property, or portfolio of properties on an estate, renewables can limit exposure to energy price hikes through, for example, the installation of solar rooftops to provide energy.
For farmers and landowners, selling energy back to the grid can also add a further and welcome stream of revenue to an estate.
Renewables also provide environmental and social benefits. Companies (including rural businesses) need to pay attention to reducing their emissions due to the UK’s commitment to achieve net-zero greenhouse gas emissions by 2050. This target requires a significant increase in renewable energy deployment, which the government is incentivising.
The future of estates may be able to benefit from such incentives. Similarly, as consumer priorities change, and they become more prone to buy products from a green supplier, estate owners can capitalise on the opportunity and realign their brand.
In welcome news to landowners and farms, some of the barriers for investing in renewables could soon be lifted based on new government proposals.
Fewer permissions for solar panels
Planning permission should be obtained before installing solar panels on unbuilt land or rooftops. Only in limited circumstances can you rely on “permitted development” rights.
In February 2022, the government published the consultation covering permitted development rights and renewable energy. This goes into detail on the situations in which solar panels can be installed lawfully without planning permission.
If enacted, these changes would simplify the requirements for owners of houses, commercial buildings and farms looking to install solar panels on their premises.
With a general election required by December 2024, the political uncertainty may result in alterations and delays to the implementation of the British Energy Security Strategy. Irrelevant of composition of a new government, it is clear that the UK’s commitment to and focus on net zero by 2050 will remain a priority, and the opportunities this offers are exciting for the future of estates.
The return of onshore wind farms
The current National Planning Policy Framework (NPPF) doesn’t prohibit the creation of new onshore wind farms but imposes a threshold that is far too difficult to comply for new developments to be feasible.
In December 2022, the government published the consultation on levelling-up and Regeneration Bill: reforms to national planning policy, proposing changes to this threshold to make it more manageable.
While there is controversy regarding the effectiveness of some of these changes, some of them are helpful.
First, the use of supplementary planning documents for identifying suitable wind energy development areas makes this site selection faster and more flexible.
Second, allowing wind developments to be granted via local or neighbourhood development orders, instead of a planning permission, also adds flexibility.
These changes will help new wind developments, especially if these are schemes brought by grassroots groups. This means opportunities for both residential and commercial owners looking for green alternatives.
Challenges: Best and Most Versatile (BMV) agricultural land
BMV agricultural land is the land in grades 1, 2 and 3a of the Agricultural Land Classification. Due to food security concerns, the NPPF provides that, for new developments, areas of “poorer quality” land should be preferred to those of “higher quality.”
The NPPF doesn’t say that renewable developments and other developments are forbidden on BMV agricultural land.
Unfortunately, however, many local planning authorities have interpreted the wording of the NPPF as a complete prohibition of developments in BMV agricultural land. This is the main challenge for new renewable developments, as they struggle to obtain a planning permission.
This incorrect and, indeed, unlawful interpretation has led to the rejection of a significant number of solar and wind developments: in particular, those which are proposed to be built over grade 3a (or above) agricultural land, even when the grade 3a land is the lowest grade in the area and there are no other suitable areas for the development.
Instead, in these situations, the authority should have carried out a balancing exercise on the benefits and disadvantages of the renewable developments.
This is especially problematic for estate owners whose farmland is normally classified as BMV agricultural land. The policy changes do not address this issue.
But there is opportunity for these decisions from local planning authorities to be appealed to the Planning Inspectorate, which can overturn the decision and grant planning permission. This is a time-consuming exercise for which legal assistance is advised.
Tax implications
Diversification of farmland on an estate should also consider the inheritance tax implications of any change of use. Estate owners often assume that relief from inheritance tax will be available on the whole value of their estate when they die, but the availability of relief is subject to meeting various statutory criteria.
Very broadly, Agricultural Property Relief (APR) applies to the agricultural value of agricultural land and pasture used for the purposes of agriculture for the relevant period, and so this relief may no longer be available upon development.
Business Property Relief (BPR) may provide some comfort, as relief can be available at 100% on a business or an interest in a business which is wholly or mainly trading, or at 50% on land used in a business which has been owned for at least two years.
Currently, BPR isn’t available if the activities of the business are over 50% ‘investment activity.’ Estate land let to a third-party energy company constitutes as investment rather than trading activity for this purpose.
Provided this forms only a small part of the predominantly trading activity of the business, BPR may still apply.
It will be important to consider whether such a renewable scheme may tip certain estate landowners onto the wrong side of the wholly or mainly test, risking the loss of relief on the whole business.
In such circumstances, it might be better to run a solar farm in hand, contracting out maintenance and taking readings, or operating a wind farm through a joint venture, so that the activity is a trading activity for tax purposes. Advice should be taken in each case.
The future of renewables on estates
The potential environmental, social and financial benefits of renewables for estates, combined with the current government’s proposed changes, promise to make it easier to deploy solar and wind developments for both residential and commercial owners of rural land.
The interpretation of BMV taken by local planning authorities represents a challenge, but not an insurmountable one.
Economically, it’s a complicated time for rural businesses but also a good time for their owners to start looking at how they can build sustainable practices into the family business and at the same time work towards decarbonisation.
Land holdings and farm buildings offer good opportunities to integrate renewable technologies to reduce running costs and generate an additional source of income. For example, a solar PV system or other generating asset connected to a farm supply will minimise the need to purchase power from the grid and safeguard against rising electricity prices. More interestingly utilising your operation and land has the potential to generate not only power, but additional income.
The installation of a commercial scale solar PV system installed on a farm building, which makes use of a freely available space and requires little to no future maintenance can offer substantial diversification opportunities for the next generation.
And finally for agriculture and farming businesses, when it comes to selling products, particularly under contract to large corporate buyers, the ability to demonstrate the green credentials and reduced carbon footprint of the produce will also bring sustainable benefits.
Euan Hutchison
Consenting Associate Director
