The Autumn Budget will fundamentally change the landscape of British farming
Paul Horton, partner in the Wills, estates, tax & trusts team, considers the effect of changes announced by Rachel Reeves in her Autumn Budget on 30 October 2024 on farmers and growers.
Inheritance Tax (IHT) relief of up to 100% is currently available on qualifying business and agricultural assets. Agricultural Property Relief (APR) is available on the agricultural value of agricultural land and property and Business Property Relief (BPR) is available on trading business assets.
Generally, farmers have been able to use APR and BPR to pass agricultural property to the next generation free from IHT, maintaining the traditional family farm.
Owning and letting land on Farm Business Tenancies (FBTs) which can also attract 100% APR, has made land an attractive and safe investment.
The government has announced it will reform APR and BPR.
From 6 April 2026 100% relief will apply to the first £1 million of combined agricultural and business assets, however only 50% relief will apply to assets over that amount.
A new allowance will apply to the combined value of property in an estate qualifying for BRP and APR. This means for an estate valued as having £1 million relevant property, the estate could either apply 100% BPR, or say a combined £400,000 of APR and £600,000 of BPR
An estate with a trading farming business of £2 million could attract 100% relief on the first £1 million and 50% relief on the second £1 million. This means a potential inheritance tax liability of £200,000. This is before the application of any other exemptions and the available nil-rate bands and assuming there are no failed lifetime gifts that come back into the IHT calculations.
An estate with a £5 million farming business would need to find £800,000.
IHT is due on the submission of the IHT return following death, in some circumstances, an IHT liability can be paid in equal annual instalments over 10 years.
There will be a combined £1 million allowance for trusts on the value of qualifying property to which 100% relief applies, on each ten-year anniversary charge and exit charge. However, the government will launch a technical consultation in 2025 about exactly how the changes will impact trusts. It could even be that using trusts and the allowance available to them will form part of future succession plans! We will need to wait and see what the detailed rules concerning existing and future trusts will look like.
From 6 April 2027, most unused pension funds and death benefits will be included within the value of a person’s estate for IHT purposes and pension scheme administrators will become liable for reporting and paying any IHT due on pensions to HMRC. This means that the value of an individual’s estate may increase, thereby exacerbating or even creating an IHT liability that was not there previously.
The consequences are stark regardless of whether you are farming the family farm, a tenant farmer or an investor. The Autumn Budget has left farmers with many questions and few answers.
The vast majority of farms will now need to think about finding cash to pay IHT, either in a lump sum shortly following the death of a farmer or over the ten years following death. In an industry where margins are tight, having freely available cash is rare. Could this mean land needs to be being sold off to settle IHT liabilities and the end of the traditional family farm as we know it? Taking advice early is more important than ever to help mitigate the liability through properly structured and regularly reviewed succession plans. Lifetime gifting, trusts, properly structured Wills, life insurance are likely to be key tools required to minimise the impact of these changes.
Individuals who have invested in agricultural land as part of a long-term tax planning strategy to avoid IHT, the James Dyson’s and Jeremey Clarkson’s of this world may rethink their investment? Is it worth owning a farm worth more than £1 million if there is no long-term tax advantage? Will this lack of outside investment hurt the industry in the long term?
Tenant farmers are perhaps in a more uncertain situation. Decisions about the future of the land they farm and the rent they pay may be out of their control, but there is also the possibility that land sales will increase, raising the prospect of land ownership for individuals who have traditionally been priced out of the market?
In uncertain times you need advisers by your side who understand the agricultural sector.
Wilkin Chapman has been the NFU’s panel solicitor for Lincolnshire and Nottinghamshire for 16 years. We share the high standards set by British farmers and understand the enormous contribution they make to our society.
Our relationships with farmers have lasted for generations and we are here to support the farming community.
Wilkin Chapman’s specialist legal advisers understand the rural economy which enables us to provide legal advice to businesses and individuals.
If you want to discuss how the Autumn Budget will affect you, please get in touch and look out for more updates from our specialist advisers.
Don’t forget, NFU Famer and Growers in Lincolnshire & Nottinghamshire who subscribe to the Legal Assistance Scheme will be entitled to contributions from the NFU for instructions arising from completion of our Farming Health Check.
Contact Paul to discuss this further.
