The March 2024 Budget For Farmers and Landowners
Inheritance Tax relief will be available on farmland managed under environmental schemes but not for another year
The government has at last confirmed that it will extend Agricultural Property Relief (APR) to include land managed under environmental schemes from 6 April 2025.
The land must be managed under an agreement with, or on behalf of, the UK government, public bodies, local authorities, or approved responsible bodies. If not managed under a scheme then the relief will not be available.
For example, Biodiversity Net Gain arrangements are created with responsibile bodies or local authorities so will qualify for APR under the new rules. However the same activity, if privately financed without an agreement, would not qualify for APR.
It is concerning to note that the relief will only be available from 6 April 2025 and so if a farmer or landowner owns land which is managed in a scheme and passes away before this date, then this land will not qualify for APR. This seems deeply unfair and there is therefore a period of uncertainty over the coming year.
Overall this is a positive announcement for many farmers who are considering managing large areas of their farms under environmental schemes. However, there are some significant tax traps in the detail and so we will produce a separate article exploring these further.
Abolition of favourable Furnished Holiday Let tax regime
From April 2025 the tax treatment of furnished holiday lets (FHLs) will be aligned with longer term residential rentals. This will mean substantial restrictions to tax relief for mortgage interest and plant and equipment.
These changes reduce the attractiveness of letting any surplus property on the farm as holiday lets and may lead to long term residential lets becoming more desirable. This appears to be a rushed change and there may be unforeseen consequences for rural employment and tourism.
In addition to the Income Tax reliefs, FHL’s will cease to benefit from two valuable Capital Gains Tax Reliefs, holdover relief and Business Asset Disposal Relief. If considering a sale or gift of a qualifying property before April 2025 there will be anti-avoidance rules to comply with, although these have not been published yet.
There has been no mention of updates to the VAT treatment of holiday letting alongside these proposals. VAT has become a significant cost for many holiday letting businesses and it would appear to be contradictory that they paid VAT as a trade but were no longer entitled to trading status for Income Tax or Capital Gains Tax.
VAT thresholds increased
The VAT registration threshold will increase from £85,000 to £90,000, from 1 April 2024. The first increase in this threshold since April 2017. The VAT deregistration threshold will increase from £83,000 to £88,000, also from 1 April 2024.
VAT registration is mandatory when your VAT taxable turnover for the last 12 months exceeds the VAT registration threshold, or if you expect your turnover to go over the threshold in the next 30 days. Businesses can then only apply for deregistration if their VAT taxable turnover falls below the VAT deregistration threshold.
Although most farming businesses will be unaffected by these changes as they are in VAT repayment position and so generally would always opt to be VAT-registered, irrelevant of turnover. Many diversifications such as contracting or furnished holiday lets are likely to be affected.
This small increase will be of little assistance to many holiday letting business whose turnover has risen sharply in recent years, taking them above the thresholds.
If your business turnover is approaching either threshold, it will be important to seek advice from us if you are considering registration or deregistration.
Rates of National Insurance on self-employed profits reduced further
Class 4 National Insurance is paid by sole traders and partners in partnerships, with earnings above £12,570.
The rate paid by the self-employed on profits between £12,570 and £50,270 will be reduced from 9% to 6%, from 6 April 2024. This announcement replaces the Autumn Statement which reduced the rate to 8%. The rate on profits above £50,270 will continue to be 2%.
This further reduction means overall self-employed farmers could save up to £1,131 per year - a significant tax saving, especially per partner in a farming partnership.
Class 2 will no longer be payable in most circumstances from 6 April 2024, a measure announced in the Autumn Statement.
Employee National Insurance cut again
The rate of National Insurance (NI) paid by employees on wages between £12,570 and £50,270 reduced from 12% to 10% in January 2024, and is reducing again from 6 April 2024 by a further 2%, to 8%.
This means employee NI has reduced by 4% in total since January, saving employees and directors paid via the payroll up to £1,508 per year.
For farming companies, this reduction in NI may shift the balance towards salaries when compared to dividends as a method for extracting profits. This does depend on individual circumstances and so we would recommend a discussion with us before decisions on remuneration are taken.
Capital Gains Tax on residential property reduced
The Government announced a 4% reduction in the higher rate of Capital Gains Tax (CGT) payable on disposals of residential property from 28% to 24% from 6 April 2024. For those with income below £50,270 the lower rate of CGT for residential property remains at 18%.
This reduction may make gifts or sales of residential property more attractive, particularly if combined with the existing reliefs available for periods of use by farm workers and occupation by the owners.
Child Benefit retained for some higher earners
The threshold at which Child Benefit becomes repayable has been increased from £50,000 to £60,000 from 6 April 2024. This threshold applies to the higher earner of the household only and applies when either they or their partner are claiming Child Benefit.
From income of £60,000 the benefit will be repaid on a straight line basis up to an income of £80,000, above which the full amount is repayable.
For a family with 3 children the impact is as follows, including the 6.7% increase in Child Benefit from 2024 to 2025:
| Income of higher earner | £50,000 | £55,000 | £60,000 | £70,000 | £80,000+ |
| Child Benefit repayable | |||||
| Current rules | £nil | £1,450.80 | £2,901.60 | £2,901.60 | £2,901.60 |
| From 6 April 2024 | £nil | £nil | £nil | £1,547.00 | £3,094.00 |
This measure is a welcome boost for farming families with young children as the £50,000 income limit had not been increased since the charge was brought in in 2013 whilst recent inflation has brought many more families into repayment territory.
HMRC will also consult on a change to a household income-based test from 2026, although we foresee the potential for practical difficulties with such a system.
Stamp Duty on farm purchases unchanged
In November 2021 a consultation was launched into the Stamp Duty Land Tax (SDLT) treatment of purchases of both residential and commercial property in one transaction. Most farm purchases fall into this category and currently pay the lower, commercial rates of SDLT.
The consultation discussed charging the higher residential rates or apportionment but has now confirmed that farm purchases will continue to attract the lower rates.
Multiple Dwellings Relief for Stamp Duty abolished
From 1 June 2024 relief for a purchase of multiple dwellings will be abolished. This relief was not often used for the purchase of farms as they attracted the lower rates above.
The relief has been withdrawn after the number of false claims became so widespread that HMRC could not enquire into them quickly enough.
Although this relief was not used by many of our clients, we note that the potential changes to both Stamp Duty reliefs were brought about because of false or fraudulent claims. In our experience, if a tax relief sounds too good to be true then it often is. We recommend that you take professional advice before submitting any relief claims.
Reminder of the CGT Annual Exemption and tax-free Dividend Allowance reductions
From 6 April 2024, and for subsequent tax years, the CGT Annual Exempt amount for individuals will fall from £6,000 to £3,000 and from £3,000 to £1,500 for most trustees.
From 6 April 2024, the tax-free dividend allowance will reduce from £1,000 to £500.
The reduction in both allowances will lead to many more people having to complete a tax return in future years, for a relatively small tax liability.
The reduction in dividend allowance also impacts director-shareholders of farming companies when withdrawing cash from their companies. Paying dividends had previously been a useful method of profit extraction at low tax rates, and now has unfortunately become less effective.
Additional funding for HMRC debt recovery
£140m was announced for HMRC’s debt recovery operations. You can expect this to appear as more scrutiny from external debt collection agencies should you get behind on tax payments.
In addition HMRC has been given funding to improve its digital services, particularly in relation to setting up a budget payment plan or time to pay arrangement for personal tax liabilities.
Both of these options are currently available but the systems will be made more intuitive and accessible.
A budget payment plan is a weekly or monthly payment option for those wishing to make more regular payments towards future tax bills than in July and January each year and may be an attractive option for those who prefer more regular liabilities.
A time to pay arrangement is a payment plan agreed with HMRC after your liability is known, these can also be weekly or monthly as required. For those with cashflow difficulties, these arrangements can significantly reduce tax penalties.
£5m of funding for improvements to village halls
Further funding was provided to ACRE for grants for capital improvements to village halls across England.
Village halls are a vital resource for many rural communities and it's pleasing to see additional support given by the government.
Benefits in Kind to be reported via payroll
In Janury HMRC announced that from 6 April 2026 all benefits in kind will be reported and paid via payroll returns rather than form P11D.
For many this will be a simplification but for those company directors who do not currently run a payroll but have benefits in kind this will require a not insignificant investment in time and software.
Disclaimer: The information contained in this note is of a general nature and is not a substitute for professional advice. Please speak to us to obtain specific professional advice before you take any action. No responsibility for loss to any person acting or refraining from action as a result of this budget note is accepted.
Posted on 8th March 2024 by Laura Johnson and Joe Attwood.