How HMRC sees this
Four types of income — four different rules
Not all income connected to the scheme is treated the same way. Which category your income falls into determines everything. How money flows — and whether it is shared — depends on what kind of income it is and where it comes from. This reference sets out the four distinct income types that participants may encounter, with the current proposed treatment for each. Some parts are settled; some are still being designed; one area requires confirmation from before it can be presented as finalised. Where there is genuine uncertainty, this page says so clearly.
The four types at a glance
Own-land trading income
Yours entirelyincome
87 / 3 / 10 proposedDEFRA scheme payments
To be decidedScheme entity trading
Governed by SLE modelOwn-land trading income
Rule: No redistribution. 100% yours.
This is income from the normal commercial use of your land and farm enterprise. It belongs entirely to you. Joining the scheme creates no entitlement for other partners or the managing entity to any share of your own trading income.
The scheme may increase the value of some activities (better habitat, environmental credentials, visitor appeal) but any resulting increase is yours to keep.
| Income type | Treatment |
|---|---|
| Meat, wool, dairy — livestock on your land | 100% yours |
| Arable / crop sales from your holding | 100% yours |
| Commercial timber from your own woodland | 100% yours |
| Holiday lets, glamping, B&B on your land | 100% yours |
| Your own tourism, experiences, events | 100% yours |
| Residential tenancies and farm buildings | 100% yours |
Joining the scheme may increase the value of your own land-based businesses — through eco-tourism, premium provenance, or enhanced landscape character. Any benefit is yours to keep.
Tax note: Own-land trading income is taxed as farm income in the normal way. Nothing in the scheme changes this. Seek specialist advice on any activities that are new or significantly different from current trading. This page does not constitute tax advice.
Environmental credit income
Proposed rule: 87 / 3 / 10 split
Some income arises from the environmental value of specific land — principally the voluntary sale of carbon credits verified under schemes like the Peatland Code (directly relevant given the peat restoration focus) or the Woodland Carbon Code. This income is “scheme-enabled” in that the restoration work creates the verifiable environmental value. Because the land is identified with a specific holding but benefits the whole project’s outcomes, the proposed protocol shares the proceeds.
Proposed split of environmental credit income:
Each partner’s share of the 10% poolis proportional to their trustmark score relative to the total across all partners. If the scheme totals 500 trustmark points and your holding scores 75, your share is 75÷500 = 15% of the 10% pool — i.e. 1.5% of the full credit income.
Illustrative 5-partner split of the 10% pool:
- You15% (75 pts)
- Partner A30% (150 pts)
- Partner B25% (125 pts)
- Partner C20% (100 pts)
- Partner D10% (50 pts)
Note: The trustmark score methodology — what it measures and how land type and contribution are weighted — is still being designed. See the Trustmark Scoring page for detail.
| Credit type | Status |
|---|---|
| Peatland Code carbon credits | Likely applicable — awaiting DEFRA confirmation re: LRS stacking |
| Woodland Carbon Code credits | Likely applicable — awaiting DEFRA confirmation re: LRS stacking |
| Biodiversity Net Gain (BNG) units | ⛔ Blocked — see important note below |
| Nutrient neutrality credits | ⛔ Out of scope — River Ure is not on the designated catchment list |
⛔ DEFRA issued clarification in December 2024: land enrolled in an LRS project cannot also be used to generate Biodiversity Net Gain units for sale.
This is a hard prohibition for land within the scheme boundary, not just a double-counting question. There are some limited exceptions for ancillary works, but for the main scheme land, BNG income is blocked while LRS is running.
Land held outside the scheme boundary by the same landowner is unaffected. To switch to BNG, a landowner would need to exit LRS entirely and re-baseline before selling units.
Source: DEFRA / SHMA analysis of December 2024 guidance. See the BNG page for full detail.
Carbon credits and LRS — needs confirmation. The voluntary carbon market (Peatland Code, Woodland Carbon Code) operates differently from BNG and is not subject to the December 2024 prohibition. DEFRA’s general stacking guidance indicates that private and public finance mechanisms can be combined “where achievable without risking environmental integrity.” On current evidence, Peatland Code credits and LRS payments can likely coexist. We are seeking specific confirmation from DEFRA / Accelar before presenting this as settled.
Nutrient neutrality — out of scope.The River Ure is not on Natural England’s designated nutrient neutrality catchment list (verified against GOV.UK, 11 March 2026). Statutory nutrient credits are therefore not a revenue stream for Ure Dales land. See the Nutrient Neutrality page for the full explanation.
DEFRA scheme payments
Status: To be decided — stub section
What we know
- LRS payments are not a flat per-acre rate. Each project negotiates a bespoke implementation agreement with DEFRA, tied to performance metrics and agreed outcomes developed during the development phase.
- Comparable projects indicate indicative ranges of £200–£900 per hectare per year (approx. £80–365/acre/year), varying considerably by land type and restoration ambition.
- The first two LRS projects to enter delivery (August 2025) represent £55m of blended public/private finance over 20–30 years.
- LRS replaces Countryside Stewardship as the primary payment mechanism. Landowners in CS can exit early without penalty.
- Landowners on the Basic Payment Scheme (BPS, now being phased out) transition to the new ELM schemes including LRS. Entering LRS is one route for managing that transition.
Four open questions to resolve
- Does the DEFRA payment go to the SLE, which distributes to landowners — or directly to each participant?
- If distribution is through the SLE, on what basis (acreage, habitat type, outcomes)?
- Does the surplus distribution model (A–E) govern how the SLE passes payments on?
- How are blended finance payments (private investment alongside public) treated differently?
Comparator examples — illustrative only:
| Example | Payment approach |
|---|---|
| Devon Wildlife Trust LRS (Round 1) | Negotiated per-project; DWT as SLE distributes to landowners per agreed parcel-level outcomes |
| Nidderdale LRS (Round 2) | In development phase; includes private capital from landowner consortium |
| Pre-LRS YWT peat heritage schemes | YWT-managed grants to landowners per agreed management plan; overhead retained by YWT |
Comparator entries are indicative; not all details confirmed. More detail will be added when available.
Scheme entity trading
Rule: Governed by the chosen SLE model (A–E)
The managing entity may generate trading income from activities it runs directly within the scheme area — guided nature experiences, educational visits, training days, events — using the scheme brand and collective landscape. This is distinct from any individual landowner’s own business.
Key distinction: If a landowner opens their own farm to visitors and takes the income — that is Type 1 (100% theirs). If the managing entity organises a scheme-wide experience using multiple properties and the scheme brand, that income is Type 4 and flows through the entity subject to the chosen governance model.
| Income type | Run by | Treatment |
|---|---|---|
| Guided wildlife tours, nature experiences | Managing entity | SLE trading surplus |
| Courses, workshops, educational visits | Managing entity | SLE trading surplus |
| Film locations, commercial landscape use | Managing entity | SLE trading surplus |
| Grant income for scheme projects | Managing entity | SLE trading surplus |
| Tourism run by individual landowners on own land | Individual | Type 1 — 100% yours |
Governance note — how models A–E apply here. Models A–E describe how the SLE distributes its overall surplus, including Type 4 trading income. For example:
- Under Model A (YWT as SLE), scheme entity trading income stays within YWT and is used for scheme costs or reinvested in project aims.
- Under Model C/D (independent CIC), trading income flows to the CIC and is distributed according to its rules — which the consortium would set.
- Under Model E, distribution may be proportional to land contribution or another agreed metric.
See the Surplus Distribution overview for the full model descriptions.
Tax warning: Tax treatment varies significantly by SLE structure. This is one of the financial consequences Michael at Accelar will address. Seek specialist advice before distributing.
Open questions
The scheme design is a work in progress. The questions below are the most material outstanding points relating to how income is treated.
- DEFRA / AccelarCan Peatland Code / Woodland Carbon Code credits be stacked with LRS implementation payments on the same land? DEFRA's general stacking guidance suggests yes for voluntary carbon markets, but Ure Dales–specific confirmation is needed before this is presented as a settled income stream.
- Resolved — Natural England / GOV.UKIs the River Ure within a designated nutrient neutrality catchment? Resolved (April 2026): no. The Ure is not on the GOV.UK designated catchment list (last updated 11 March 2026), and nor is any downstream waterbody. Statutory nutrient credits are out of scope for Ure Dales. See the nutrient neutrality page.
- All partnersHow is the trustmark score calculated? The proposed 10% distribution method is clear; the scoring metric itself — what it measures, how land type and contribution are weighted — still needs to be agreed.
- All partners / DEFRAHow do DEFRA payments flow to individual landowners? Does the SLE distribute, or does DEFRA pay landowners directly? On what basis is any SLE-mediated distribution calculated? This determines the practical significance of the governance model choice.
- All partnersEqual or weighted distribution of the 10% environmental credits pool? If trustmark weighting is not adopted, is the 10% distributed equally across all active partners regardless of land size or habitat quality?
- Legal / Nina HeesAre aggregated vs. individual carbon credit sales treated differently under the protocol? If the managing entity brokers credits across multiple landholdings in a single sale, does the 87/3/10 split still apply per parcel, or is there a separate aggregation arrangement?
References
- DEFRA: Landscape Recovery — how the scheme works
- DEFRA Farming Blog: First LRS projects enter delivery (August 2025)
- IUCN UK Peatland Code — how it works
- IUCN UK Peatland Code — buying and selling credits
- DEFRA: Combining environmental payments — BNG and nutrient mitigation
- SHMA: BNG or Landscape Recovery — weighing up double counting
- NFU: Landscape Recovery scheme — what you need to know
- WCL: Investing in Higher Tier and Landscape Recovery (December 2024)
The Ure Dales site is a decision-aid. Treatment of income — including tax, CGT, inheritance, and partner relief — depends on individual circumstances and the final SLE structure. Please consult your own adviser before acting on the information here.
Have a question about any of this? Email Phil directly at phil@opensourcearts.co.uk or use the contact page. We’ll reply before the 30 April workshop where possible.