What does the Budget mean for farmers and landowners?
The Budget on 30th October 2024 contained some very unwelcome surprises for farmers, landowners and rural businesses. The increase in Employer’s National Insurance from 13.8% to 15% was trailed before the budget but what came as a surprise was the lowering of the NI threshold from £9,100 per annum to £5,000 per annum. Taken together, these two changes mean an additional NI payment of almost £1,000 per employee earning £30,000 per annum.
However, by far the biggest shock for farmers came in the form of the proposed changes to Inheritance Tax, limiting 100% Agricultural Property Relief (APR) and Business Property Relief (BPR) to the first £1,000,000 of value. Above that threshold, there will be 50% relief on qualifying assets, giving an effective rate of Inheritance Tax of 20%.
The existing nil rate band of £325,000 which has been in place since 2009 continues with a husband and wife or civil partner each benefitting from their own nil rate band which is transferable between spouses. The residence nil rate band (RNRB) of £175,000 also continues with a husband and wife or civil partner each benefitting from their own RNRB if their estates are valued at £2,000,000 or less. However, for estates valued at over £2,000,000, the residence nil rate band is reduced by 50% of the excess over £2,000,000 and if their total estate is worth £2,700,000 or more, then the RNRB is reduced to nothing.
Using the example of a 500 acre arable farm with a house and buildings worth £6,000,000 and machinery and other assets worth a further £1,000,000 owned by a sole trader, the Inheritance Tax payable on death after April 2026 would be £1,135,000 which is calculated as follows:
| Value of House, buildings and Land |
£6,000,000 |
| Value of machinery and other assets |
£1,000,000 |
| Total value |
£7,000,000 |
| Less nil rate band |
£325,000 |
| Less APR & BPR 100% relief |
£1,000,000 |
| |
£5,675,000 |
| Less APR & BPR 50% relief |
£2,837,500 |
| Taxable value |
£2,837,500 |
| Inheritance Tax at 40% |
£1,135,000 |
If the house, buildings and land were jointly owned by a husband and wife, then the wife would be entitled to an additional nil rate band of £325,000 which is transferable between spouses. If the wife owned some of the land, then she would also be entitled to an additional £1,000,000 of APR and BPR at 100% but as this relief is not transferable, it would not apply if the farm was jointly owned by a husband and wife.
Potentially Exempt Transfers (PETs) continue unchanged allowing assets to be gifted to the next generation free of Inheritance Tax provided that the donor lives for seven years. If the donor dies within the first three years of making the gift, then Inheritance Tax at 40% is payable on the full value of the gift. Thereafter, the rate of Inheritance Tax is reduced by 8% for each year which the donor lives.
If a donor makes a gift and dies before April 2026, then the Inheritance Tax will be calculated in accordance with the pre-Budget rules with APR and BPR available at 100% on qualifying assets but where the donor dies after April 2026, the Inheritance Tax will be calculated in accordance with the new rules.
What action should you take?
The Government will be consulting on the proposed changes to Inheritance Tax with a view to introducing the legislation in next year’s Finance Act. Farmers should not therefore be panicked into making changes at this stage because the changes to Inheritance Tax may not be introduced in their current form.
However, it is worth farmers reviewing their Wills and ensuring that they have an up-to-date schedule of all of their assets and values so that they can implement any changes to their estates once the rules have been finalised.
The final sting in the tail.
Following the Autumn budget, DEFRA published some details about its rural funding budget which remains at £2.4 billion per year.
DEFRA also announced a big reduction to Delinked Payments with a maximum payment of £7,200 in 2025. However, there was no indication of what, if anything, might be paid in 2026 or 2027, originally intended to be the last year of the payment.
This significant reduction from what was paid in 2024 will hit farm businesses at a time when many of them are already feeling under considerable financial pressure. There is also the threat of a carbon tax on imported fertiliser being introduced by the Government from January 2027 but as yet few details have emerged.
The unexpected reduction in the Delinked Payments will bring opportunities for environmental schemes, such as Sustainable Farming Incentive, Countryside Stewardship and England Woodland Creation Offer into greater perspective and farming businesses should regularly review their options to ensure they are maximising the opportunities from these schemes. The Budget announced that APR is to be extended to ELM’s schemes from 6th April 2025, but more detail is awaited on how these will interact with the proposed APR/BPR changes.
Cheffins’ team of experienced rural valuers are on hand to provide valuation advice for all rural property types as well as machinery and equipment to assist with your future tax planning requirements.
If you would like to discuss any aspect of the above, then please do not hesitate to contact either Jonathan Stiff on 01353 654900 or Simon Gooderham on 01223 271952.