The 2024 Autumn Budget for Farmers and Landowners...?
The 2024 Autumn Budget was clearly not prepared with farmers and landowners best interests in mind leaving farmers facing higher tax burdens with potentially lower funding.
We have identified three measures which we expect to have the biggest impact for our clients: restrictions on APR/BPR, reductions in BPS funding and changes to the tax treatment of double cab pickups.
We would like to emphasise that planning to mitigate tax liabilities remains possible, including making gifts more than 7 years before death to remove assets from Inheritance Tax and the ability to Holdover Capital Gains on agricultural land.
Throughout our note we have highlighted actions that our clients can take in the face of these changes.
Inheritance Tax reliefs capped
The existing 100% reliefs for agricultural land and business property will be capped at a combined £1m, with the excess attracting only 50% relief. This is a substantial change from the existing rules and will have significant impacts on many farmers and landowners, even those who would not consider themselves to be wealthy individuals.
The new £1m cap on relief applies to estates from 6 April 2026 but includes any gifts of land or business assets made from 30 October 2024 onwards, where death arises within 7 years. If death occurs more than 7 years after the gift it will continue to be outside of Inheritance Tax.
The £1m allowance cannot be transferred between spouses so assets will need to be held by both husband and wife in order to maximise the relief.
Assets qualifying for 50% relief such as land on an AHA tenancy or assets used by a farming company will continue to do so without any cap.
It has been confirmed that the assets within the cap will not use up an individual's nil-rate band or residential nil-rate band, both of these are continuing at £325,000 and £175,000 respectively.
Trusts will also be affected by these rules, although the details for these have not yet been finalised.
Action: Plan Early - Succession planning has long been a key issue for multi-generational farming businesses but early planning will become of vital importance as these rules take effect and many farmers seek to survive 7 years from the date of gift to reduce their exposure to tax.
Action: Review wills - For many years standard wills have been prepared under which all assets pass to the surviving spouse but this now risks missing out on £1m of Inheritance Tax relief. Clients should review their wills and update them to secure this relief on the first death in future.
Joe Attwood will be delivering a talk on the changes to Inheritance Tax at the Herefordshire Rural Hub Advice Day on Tuesday 12th November, following this we will issue a more detailed explanation of the rules.
Delinked BPS Payments reduced
Although the budget for DEFRA was retained at £2.4bn for next year, significant cuts to delinked BPS payments for 2025 were announced. The maximum delinked payment will be £8,000 representing a significant decrease for larger claimants. Although smaller claimants will see a proportionally smaller reduction in their payments.
DEFRA explained that they will reallocate these funds to grant schemes and ELMS. Farmers will therefore need to pursue any opportunities arising under these schemes, at additional cost, in order to obtain the same funding as they had previously expected.
Double cab pickups to be taxed as cars
From 1 April 2025 for companies and 6 April 2025 for individuals and partnerships, double cab pickups will be treated as cars for Capital Allowance purposes and benefits in kind.
With electric/hybrid double cabs still not a viable option, this significantly restricts the tax relief given in the year of purchase and exposes directors and employees to income tax charges on up to 37% of the value of the vehicle each year.
For vehicles which are purchased before April 2025 then tax relief should be available in full on the purchase under the annual investment allowance and the lower benefit in kind fixed rates will be available until 2029.
Action: Anyone looking to change their pickups should do so in advance of April 2025 to secure the more generous allowances.
Employer's National Insurance changes
The rate of Employer's National Insurance increases from 6 April 2025 to 15% and the threshold that this tax applies from will be reduced to £5,000 per employee.
To compensate small employers for this, the Employment Allowance was raised from £5,000 to £10,500.
Taken together these measures mean that a farm employing two staff on salaries of £40,000 will not pay any Employer's National Insurance, three staff can be employed on average salaries of £28,000 before Employer's NIC is due.
Many small farms will not be affected by the headline increase in this rate but for larger employers these changes represent an additional £615 per employee per year.
The temptation may arise to utilise more self-employed workers to avoid this cost. We advise caution is taken with this approach as the small print says that HMRC will be checking whether people are correctly engaged by businesses.
Minimum wage increased and employees' rights enhanced
From 6 April 2025 the minimum wage for those aged 21 and over will rise by 6.7% from £11.44 to £12.21 an hour. This is equivalent to a full-time salary of £23,810.
The Government also announced an intention to align the rate for all adults and increased the minimum wage for 18 to 20-year-olds to £10 an hour.
Further to these increases, protection is offered from day one from unfair dismissal and maternity and paternity leave is available from day one.
Although these changes are good protections for workers they are potentially very expensive for employers. Taken with the increase in employers NIC, labour intensive sectors such as fruit growing will have tough decisions to make on the use of labour or technology in their businesses.
Pensions to be subject to Inheritance Tax from 6 April 2027
From 6 April 2027 undrawn pensions and death benefits will be subject to Inheritance Tax. Prior to this date they will continue to fall outside of a person’s estate for tax purposes.
There have been no changes announced to income tax relief, pension limits or the lump sum allowance.
In recent years it has been advisable to hold undrawn pensions for non-farming family members as a useful IHT-free off farm pot of funds. The retention of higher rate income tax relief can still make this attractive. Specific investment decisions should always be discussed with your Independent Financial Advisors before proceeding.
Corporation Tax stabilised
The Government has published a commitment to maintaining the existing 25% and 19% rates of Corporation Tax and the existing Capital Allowances including £1m Annual Investment Allowance and unlimited allowances for new equipment until the end of this parliament.
This is welcome stability for our clients with companies and we note that planning opportunities arise particularly for those companies with profits around £50,000 or £250,000 per annum.
Capital Gains Tax rate increases
The main rates of Capital Gains Tax (CGT) will increase from 10% to 18% (for basic rate taxpayers/the lower rate) and from 20% to 24% (for higher and additional rate taxpayers/the higher rate).
No changes will be made to the Capital Gains Tax rate for residential properties, which remains at 18% and 24%, meaning that there are now just two main rates of CGT in play.
The new CGT rates will apply to all disposals made on or after 30 October 2024, with anti-forestalling rules introduced for unconditional contracts entered before budget day, but not completed until after. These disposals will be subject to the new rates of CGT unless the parties can demonstrate they did not intend to obtain a tax advantage by selling before the budget announcement, or where the parties to the contract are connected, that the contract was entered into for wholly commercial reasons.
Capital gains tax payable on the disposal of a residential property remains payable within 60 days of completion and will still need to be reported via a 60-day CGT return.
Business Asset Disposal Relief changes
Business Asset Disposal Relief (BADR) is currently available on the first £1 million of capital gains, when you dispose of part or all of your business, having met the qualifying two-year period of ownership.
The lifetime limit for BADR will remain at £1 million but the rate of CGT payable under the relief will increase from 10% to 14%, from 6 April 2025, and then again to 18%, from 6 April 2026.
Action: Sales will need to be completed before 6 April 2025 in order to crystallise the gains at the current rate of 10% and so we would encourage any deals eligible for BADR to be completed before. Any contracts entered into before April 2025, but not completed until after, will be subject to anti-forestalling rules.
Alcohol Duty increased
Duty rates for all non-draught products were increased by 3.6% for the year from 1 February 2025 onwards.
Although the reduction in draught duty is welcome for all pub goers, the corresponding increase in duty on all other alcohol is potentially damaging for small rural producers of spirits and bottled ciders.
Child Benefit changes scrapped
The Government had previously suggested they were going to reform the High-Income Child Benefit Charge (HICBC), based on total household income. We are pleased to note that the budget has confirmed that these changes have been scrapped and so the charge will still be calculated based on the highest individual earner's income.
From April 2024, the earnings threshold for the HICBC was increased from £50,000 to £60,000. This means that Child benefit is repaid when an individual’s earnings exceed £60,000. Child benefit is repaid on a straight-line basis up to an income of £80,000, above which the full amount is repayable.
Making Tax Digital Confirmed
The Government confirmed that from 6 April 2026 landlords and sole traders with combined income exceeding £50,000 will be required to file digital records on a quarterly basis for their income tax.
From the following year individuals with income exceeding £30,000 will be included and this budget announced an intention to reduce the income threshold to £20,000 by 2029/30.
There are currently no dates provided for the inclusion of partnerships and companies within these rules.
This announcement is a sign of the future of tax reporting as HMRC moves to digital systems. As the turnover limit decreases, many individuals who are not currently keeping digital records will be required to do so. We will be individually contacting our clients who are affected and helping them understand how to meet the new requirements.
HMRC staffing increased to combat fraud and tax avoidance
The Government plans to recruit an additional 5,000 compliance staff and provide funding for 1,800 debt management staff, in their hope to ‘close the tax gap’ and ensure that more of the tax which is owed is paid.
The Government will expand HMRCs counter fraud capability, addressing high value and high harm tax fraud, and will strengthen their scheme for rewarding informants.
Further measures were introduced to counter specific tax avoidance schemes and we remind our clients that when it comes to tax, if it seems too good to be true then it probably is.
Stamp Duty Land Tax increased for second homes and companies
From 31 October the additional SDLT payable on second homes and on all property purchases by companies and discretionary trusts is increasing from 3% to 5%.
This rate changes will not affect purchases of farms which include houses as they are treated as commercial property and not subject to the supplemental Stamp Duty.
From 1 April 2025 Stamp Duty Land Tax thresholds for residential property are returning to lower levels, increasing the SDLT payable for a property exceeding £250,000 by a further £2,500.
Although farms are not directly affected, farmers looking to diversify into residential property are likely to see increased Stamp Duty costs.
Changes to HMRC interest rates
HMRC announced changes to two important rates of interest from 6 April 2025.
The interest payable on late payments of tax will move from 2.5% over base to 4% over base, if the base rate does not change before April 2025 then the rate will be 9%.
Late payment can therefore result in a very large unwanted interest charge being added to the original liability. Taxpayers do receive interest for paying tax early - currently 4% (base rate less 1%) and so early payment is favourable when compared to late payment and the associated interest and possible penalties.
The official rate of interest will be updated quarterly, leading to more complex calculations for those with accommodation benefits and loans from their companies. This is likely due to the current 2.25% being deemed too slow to react to increases in the base rate.
Inheritance Tax for AIM shares restricted
AIM shares have been a useful way of obtaining Inheritance Tax relief for off farm investing as many AIM company shares currently attract 100% relief. From 6 April 2026 they will be subject to Inheritance Tax on 50% of their value.
The shares must be held for two years prior to death in order to obtain relief.
Payrolling of benefits in kind to be mandatory
In recent years many company directors have taken advantage of the low benefit in kind rates for electric vehicles. From 6 April 2026 the benefit in kind reporting for all benefits, except for accommodation and employee loans, will be via the payroll.
Some companies may only be reporting directors benefits via P11D at present and will need to consider how to meet the additional monthly filing requirements
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 31st October 2024 by Joe Attwood & Laura Johnson.