The future of UK farming

Will Sherring, a Manager in our Business Team, specialising in the Agricultural sector shares some points of discussion following the outcome of the Budget for farmers. The agriculture sector has no doubt been greatly affected by announcements in the Budget, our team of experts at Price Bailey are passionate about the clients we work with, and the businesses we can support through these times of challenge and change. 

Below, we discuss some of the recent changes set to challenge our clients within the agriculture industry, and how we can potentially assist you.

The restriction of Agriculture Property Relief (APR) and Business Property Relief (BPR)

Recently, whilst discussing potential changes to IHT relief with the Head of Business at Price Bailey, I suggested APR would be removed. My view was that farming was the only industry to benefit from IHT relief on the main residence through APR, whereas dentists, accountants or even a publican whose main residence could have an element of business use might not benefit from such reliefs.

With BPR available on land used in a farming business, I suspected APR would go…

My reasoning for this was if the land qualified for BPR, the house would utilise a couples Nil Rate Band (NRB) and in the majority of farms could have fallen out of the scope of IHT.

This would have meant, where a farm sat in the country would depend on the tax faced (East vs West or North vs South) due to valuation variances. We also discussed a potential capping to the amount of APR a dwelling might receive, to try and counter the location factor.

I think it was fair to say, we did not see this coming!

So what’s (potentially) new?

I use “potentially”, as I hope the recent protests and outcry might prompt discussions between government and farmers and their representation to try and find a position that is more measured.  The finger in the air figure of £1m used by government, doesn’t go far when you consider this includes interest in Stock, Machinery as well as buildings.  I can see a higher figure of £2.5m each being more “palatable”, but the government will be keen to avoid a backdown so early into their tenure.

Change 1 – from 6 April 2025

The Government has confirmed it will extend the existing scope of APR from 6 April 2025 to land managed under an environmental agreement with, or on behalf of, the UK government, devolved governments, public bodies, local authorities, or relevant approved responsible bodies. Legislation will be included in Finance Bill 2024 to 2025.

Change 2 – from 6 April 2026

IHT Relief of up to 100% is currently available on qualifying business and agricultural assets. From 6 April 2026, the 100% rate of relief will continue, but only for the first £1 million of combined agricultural and business property (after continuing existing relief such as the Nil Rate Band on residences), which falls to 50% thereafter. The Government will also reduce the rate of business property relief available from 100% to 50% in all circumstances for shares designated as “not listed” on the markets of recognised stock exchanges, such as AIM.

This means that whilst the first £325,000-£500,000 (£650,000-£1m for a married couple) of the farm house will get relief, the next £1m of business value will receive 100% relief, with the excess receiving 50% relief. At a rate of 40% IHT, there is an effective IHT rate of 20% on estates over £2m. With land at £10,000/acre, it will not take a large farm to be caught by this.

Shares in family Limited Companies are also being targeted, so those farming via a company, or even with a Contracting or diversified entity in a Limited Company will be impacted by these changes to IHT reliefs.

Succession!

Whilst the headlines and the detail clearly aren’t fantastic news, for an already beleaguered industry, there are opportunities. The possibility of bringing forward succession planning, gifting assets earlier, insuring against IHT are still options.

Capital Gains Tax (CGT)

Rates of CGT are increasing from 10% and 20% (depending on income levels) are increasing to 18%-24%.

Residential rates for CGT remain unchanged, and the 60 day notice to inform and pay Residential CGT remains in place.

VAT on Independent school fees

With many farming families choosing to educate the younger generation through independent schools, much like their parents and grandparents enjoyed, will now see a 20% increase in fees. 

The changes are set to commence 1 January 2025.

National Insurance (NIC)

Headline rates for employers is an increase of 15% for Employer NIC and a reduction of the threshold at which point contributions start.  An increase in the Employer Allowance to £10,500 may help to offset some of this increase.

The Double U-turn on Double Cab Pickups

A previous attempt by the Conservatives to treat Double Cab Pickups with a payload of over 1 tonne as cars for tax purposes was reversed in February 2024. However, Labour have decided to drive on with this policy and will bring this in from 1 April 2025 for Ltd Co’s, and from 6 April 2025 for personal tax. So if you are thinking of changing your vehicle, do so before these dates for more favourable relief (this goes for all business, not just farms).