This budget was meant to be for the Working People. Well, it seems that Rachel Reeves doesn’t think farmers are Working People, with rural businesses having been hit more than any other industry.
With £40 billion in taxes to raise, the announcements today may have a detrimental impact on many farming businesses. From increases in labour costs to huge inheritance tax reforms it is likely that the implications will have a harmful effect on food production, food security and could lead to food price rises.
Inheritance tax
The first £325,000 of everyone's estate is inheritance tax free (£325,000 uplifted to £500,000 where the main residence is left to descendants and your total estate is less than £2m). This allowance has not changed since 5 April 2008 and it is now been extended until 2030, which will be 22 years since the last change!!.
From April 2027 pensions pots under defined contribution scheme will be in the scope for inheritance tax. This means when an individual dies they can still pass on the proceeds, but the pension pot will get added to property and shares as part of potentially chargeable assets.
The government have also hit vital inheritance tax reliefs and possibly threaten the long term viability of the family farm. From April 2026, the first £1m of combined business and agricultural assets will continue to attract no inheritance tax, but for assets over £1m inheritance tax will apply with 50% relief and the remainder charged at 40% (giving an effective rate of 20%). Although in the small print it appears that the 50% relief only applied to individuals and not trusts.
Also, the £1m allowance is not transferable between spouses.
Although land can be gifted during lifetime, with an aging population this means for many farming families gifting now may be too late, as you need to survive 7 years from date of gift to be fully exempt. As it seems the new rules will apply for lifetime transfers on or after 30 October 2024.
The CLA stated that “Labour made repeated assurances over the last 12 months that it would not tamper with inheritance tax reliefs, and its decision to now rip the rug from under farmers is nothing short of a betrayal”.
The CLA, NFU and other organisation will be strongly opposing and hopefully will encourage some sort of campaigning.
To try and finish on some positive news, the government have however confirmed they will introduce legislation to extend the existing scope of Agricultural Property Relief from 6 April 2025 to land managed under an environmental agreement as proposed by the Conservative government.
Withdrawal of Winter Fuel allowance – with 30% of farmers being over 65 (Census 2021 data), this is yet another added costs.
Employers
There were a number of changes that will affect anyone who is employing staff:
1. National Minimum wage - will raise to £12.21/hour, a 6.7% increase and move to a single adult rate. On an industry which is already struggling with labour shortage issues and rely heavily on minimum wage workers, this will be a huge cost to many farming businesses.
2. Employer National Insurance (NIC) - Employer NIC to rise by 1.2% to 15% in April 2025, with the secondary threshold cut from £9,100 to £5,000. Although employment allowance will increase from £5,000 to £10,500 and the £100,00 threshold removed. This will still prove a costly measure for many employers.
3. Employee pay - No changes to NIC, VAT or income Tax for employees. The frozen income tax thresholds by the previous government to end by 2028/29 with thresholds uplifted with inflation after that.
Summary of other key announcements:
1. Annual Investment Allowance - maintained at £1m, which allows all businesses to purchase up to £1m of qualifying assets and get instant tax relief.
2. Double cab pick ups - will be treated as cars for the purposes of capital allowances (no longer eligible for AIA’s), Benefits in Kind, and some deductions from business profits. It was only a few months in February this was proposed but resulted in uproar that it was immediately scrapped.
3. Fuel Duty - Despite the temptation to hike fuel duty, the Chancellor once again froze rates. This was about one of the very few good pieces of news.
4. Capital gains tax - A rise to CGT was expected, and luckily it was only a 4% increase. The Lower rate to rise from 10% to 18%, higher rate from 20% to 24% (Effective from today). Residential property rates maintained at 18% - 24%.
The more damaging change was Business Asset Disposal Relief, which allows individuals exiting a business to benefit from at 10% tax rate which is now going to rise to 14% (from April 2025) and 18% (from April 2026). The lifetime limit is still only £1m, giving hard working Entrepreneurs only a £60,000 tax saving.
5. Corporate Tax - The rate of corporation tax remains the same, the main rate at 25% and the small profits rate at 19% with tapered relief between these rates.
Full expensing also maintained which allows companies (not partnerships) to deduct the full cost of qualifying assets.
6. Stamp Duty Land Tax- The Second home surcharge increased to 5% from 3% effectively immediately.
7. VAT on Private School Fees - To be introduced from 1 January 2025 (as previously announced).
8. Farming budget - The government announced the farming budget will remain at £2.4 billion for 2025/26. This has been frozen since 2014, so in reality a budget cut. £1.8 billion for environmental schemes.
In addition the government are accelerating the end of the direct payment phaseout. Farmers receiving up to £30,000 will have 76% removed in 2025, but anything above that will be cut entirely. Meaning a farmer who originally received more than £100,000 in the Basic Payment Scheme (BPS) will receive no more than £8,000 in 2025.
In Summary
It just feels that the rural industry has been attacked from all sides. Just because a farm can be a valuable asset it doesn’t mean those who work it are wealthy.
Families therefore now need to start planning and preparing. Luckily there was no change to lifetime gifting and holdover relief is still available. So now is the time to review your IHT position.
Of course, there were other important announcements made, which have not been mentioned above, which will also affect some businesses and individuals.
If you want to discuss any matters arising from the budget please do not hesitate to contact us.
But if you want to drown your sorrows and go to the pub, you can benefit from the price of a pint pulled will be a penny cheaper!
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