Introduction
The UK Autumn Budget 2024 presented by Chancellor Rachel Reeves introduced a range of challenges and opportunities for the agricultural sector.
With rising labour costs, adjustments to tax reliefs, and reduced subsidies, strategic planning in workforce management and financial decisions will be essential.
Farmers, employers, and those in agricultural recruitment and workforce management need to understand these developments.
We have outlined some of the questions and answers to guide you.
Q: What changes to inheritance tax for UK farms were announced in the Autumn Budget 2024?
A: From April 2026, the first £1 million of combined business and agricultural assets will remain fully exempt from inheritance tax. For assets exceeding £1 million, inheritance tax will apply at a 50% relief rate, meaning an effective tax rate of 20% on the value above the threshold.
If for example, we have a family farm with a value of £4.5m. Before April 2026, the entire farm (assuming it meets the criteria for Agricultural Property Relief (APR)) would be exempt from IHT. Fast-forward to post April 2026, only the first £1m of value would be covered by this relief, meaning the other £3.5m would have only 50% relief (tantamount to a 20% rate of IHT) resulting in a liability of £700,000
Q: How are these changes expected to impact family farms?
A: There is a concern that these changes could threaten the long-term viability of family farms especially the younger farmers. They already face ongoing challenges just to remain profitable , so now having to account for 20% inheritance tax on the value of their business assets above £1 million could become an additional insurmountable barrier for future generations.
Q: How will Capital Gains Tax (CGT) rates affect farming businesses?
A: Capital Gains Tax rates have already or are set to increase on disposals of capital assets whether they qualify for, Business Asset Disposal Relief or not. This may lead some farm businesses looking to take advantage of the current rates before they change from April 2025 Others may choose to wait, hoping for possible u-turn .
Q: Is there a “window of opportunity” to make changes before the new rules take effect?
A: Yes, businesses looking to take advantage of current APR and BPR rates have until April 2026. During this period, companies may be able to make adjustments to their succession plans or consider other tax-saving strategies.
Those who are considering selling will need to do so before 6 April 2025 to benefit from the current BADT rate of 10%. From April 2025 this increases to 14% before a final increase from 6 April 2026 to 18%.
Q: What will the impact be on land prices and farm structures?
A: Landowners may see structural changes in farming and land occupation. Farmers may need to reconsider retiring from their business and leasing land, as IHT relief on that land is now limited. Two key factors will influence land prices: whether buyers exit the market due to reduced IHT relief / increased CGT rates and whether the supply of land increases as it becomes less attractive to retain land in retirement.
Q: Will there be changes in the supply and rent of let land?
A: The supply of let land may increase due to reduced tax advantages of farming land in-hand. However, it is uncertain whether this will drive rents down, as farm profitability now strongly influences rent levels.
Q: Should farmers consider bringing forward succession plans?
A: Farmers may want to consider accelerating succession plans before April 2026 to make use of current reliefs. For example, moving assets to a family member or into a trust and claim the 100% APR. However, we do need to be mindful of CGT as this may complicate this. Gifting assets is treated as a sale for tax purposes, potentially incurring a 24% CGT on unrealised gains.
Q: What impact will changes in Business Asset Disposal Relief have on passing down farms?
A: Business Asset Disposal Relief will become less generous starting in April 2025. This change, along with adjustments in IHT, could make it more challenging to keep farms within the family. Ms. Millington notes that selling isn’t necessarily a solution either, as CGT applies to sales and any remaining proceeds may still be subject to IHT.
Next Steps
With protest being staged in London recently due to these proposed changes, there is consideribale pressure on the government to reverse these proposed changes. So far, they seem to be holding their ground.
It’s imperative to seek advice on this if you and your family are affected by the change.
At ETC Tax we specialise in complex tax matters, and as such, would be exactly the type of adviser you will need on your side to plan your way out of these issues.
Get in touch today!
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