The Budget was a seminal moment and defines the direction of the British state, economy and society. Not since Norman Lamont’s 1993 Budget (“the right budget, at the right time”) have we seen such seismic changes to the UK tax and public finance system.
However, I would argue that it was Mr Lamont’s 1992 Budget that for farmers was the truly seismic event. This was a positive event, whereby Inheritance Tax (IhT) reliefs rose, potentially covering 100% of an asset’s value. Following the Autumn Budget, Rachel Reeves has taken us back to the pre-1992 level, and arguably back to the days of “death duties”. Agricultural Property Relief (APR) and Business Property Relief (BPR) are no longer catch-all protections.
Farms have seen capital values appreciate significantly, far above the rate of inflation, since 1992. We now, as a sector, face significant tax liabilities where the average age of a farmer is near enough 60.
Much has been written about the actual changes brought about by the Budget. It is important that we focus on the bigger picture as we see it, where we think clients should focus their energies, and our key principles of advice.
1. The direction of travel is set
National attention is currently focussed on rallies, protests and lobbying to secure changes. However, the Government has clearly defined its direction of travel. This was a true Labour Budget, big on spending and big on tax. Perhaps more importantly for our sector, the Budget has shown us who Labour thinks should be paying tax. This includes landed businesses. Whilst there may be tinkering around the edges, possibly seeing a rise in IhT allowances for APR and BPR, we should not expect a major reversal. To rely on this assumption and avoid planning is a recipe for disaster. It also ignores the fact that the previous 30 years have been an anomaly. Inheritance Tax on farms is not a new concept.
2. It could have been a lot worse
The media talks often of politicians ‘rolling the pitch’ in the run up to any major political event. It’s a key way for politicians to stress test ideas. The constant drip, drip, of policies during the previous Conservative governments was a key part of the media narrative. Interestingly, the changes to APR and BPR were not part of the process this time around, albeit the removal of APR has been suggested every time a fiscal event comes around.
What was heavily trailed was a significant raise in Capital Gains Tax (CGT) rates. Some papers had expectations that this would match an individual’s marginal income tax bracket. In reality, and I can hear the protestations already, we have seen relatively modest increases. Rates will be brought in line with residential properties, at 18% and 24%. There is a lead-in period before these rates come in fully and it is only levied on the chargeable gain.
3. It’s time to talk to the kids
We are waiting for the full review in Autumn 2025 to confirm how the new relief rates will apply. In the meanwhile, detailed reviews suggest that up to £3 million of assets can be fully protected, through transfers between spouses.
Our sector trades partially on the image of family farms. A true family farm should have an inter-generational workforce. This Budget means that we now need to empower a younger generation into farming businesses. The use of partnership agreements, trusts, land transfers, and Potentially Exempt Transfer (PETs) will all be key in the coming years.
The Budget was certainly a shocking change for many, and for some, there will be limited time to mitigate a large tax burden. But for other families, bringing the next generation into the business now will be no bad thing. It may revitalise businesses and help to empower the next generation.
4. The Government will need more money
The British economy is not a pretty picture. The Budget’s impact, after a significant injection of cash and borrowing, is expected to disappear within two years. Growth will peak at 2% before dropping back. This is not the forecast of a thriving economy. The Budget’s spending plans show significant frontloading towards the first half of the Parliament. Current spending projections thereafter are unrealistic. It is almost certain the Government will need to come back and raise tax receipts once again. The rolling pitch for this Budget heavily suggested CGT rates rising. If assets should be disposed of because they do not fit a rural business’ wider strategy then this should be addressed as a priority, before CGT rates do rise further. It is not unreasonable to expect CGT rates to rise again within this Parliament, to the point at which a disposal could wipe out much of the gain.
It is also worth pointing out that the Inheritance Tax rate chargeable for farms after allowances is still a preferential one. The effective rate of tax is 20% versus the standard 40%, and that is on top of the reliefs described above. Now that the core principle of taxing farms has been established, there may be a creeping up of rates, making a bad situation, worse.
5. Now is the time to crack on
Time waits for no man. The world has changed for farming businesses, and it is not up to land agents to debate the fairness of government policy, or provide a moral judgement. It is our role to advise, protect, and support clients on this transition. The key message we want to get across is that the world has changed. Do not ‘wait and see’, or put your head in the sand. Sit down with the family and professional advisors and develop a strategy. At the worse case this will mitigate tax liabilities. At the best, it might empower another generation and create a true family farm.
