It’s the farmer in the den!
Introduction
The UK’s Autumn Budget 2024 presented by Chancellor Rachel Reeves introduced a series of challenges and opportunities for the agricultural sector.
With rising labor costs, adjustments to tax breaks and reductions in subsidies, strategic planning for workforce management and financial decisions will be essential.
Farmers, employers and those responsible for recruiting and managing agricultural labor need to understand these developments.
We have presented some of the questions and answers to guide you.
Q: What changes to inheritance tax for UK farms were announced in the 2024 Autumn Budget?
A: From April 2026, the first £1 million of combined business and agricultural assets will remain fully exempt from inheritance tax. For assets above £1 million, inheritance tax will apply at a relief rate of 50%, meaning an effective tax rate of 20% on the value above the threshold.
Take for example a family farm worth £4.5 million. Before April 2026, the entire holding (assuming it meets the Agricultural Property Relief (APR) criteria) would be exempt from IHT. After April 2026, only the first £1 million of value would be covered by this relief, meaning the remaining £3.5 million would only benefit from 50% relief (equivalent to an IHT rate of 20%), which would result in a liability of £. 700,000
Q: How are these changes expected to impact family farms?
A: There is concern that these changes could threaten the long-term viability of family farms, particularly young farmers. They already face ongoing challenges just to remain profitable. So, now having to account for 20% inheritance tax on the value of their business assets above £1 million could become an additional insurmountable barrier for future generations.
Q: How will capital gains tax (CGT) rates affect agricultural businesses?
A: Capital gains tax rates have already increased or are about to increase on disposals of capital assets, whether or not they qualify for business asset disposal relief . This could lead some agricultural businesses to seek to take advantage of current rates before they change from April 2025. Others may choose to wait, hoping for an eventual turnaround.
Q: Is there a “window of opportunity” to make changes before the new rules take effect?
A: Yes, businesses wishing to take advantage of the current APR and BPR rates have until April 2026. During this time, businesses may be able to make adjustments to their succession plans or consider other business strategies. tax saving.
Those considering selling will need to do so before April 6, 2025 to benefit from the current BADT rate of 10%. From April 2025, this rate increases to 14% before a final increase from April 6, 2026, to 18%.
Q: What will be the impact on land prices and agricultural structures?
A: Landowners may see structural changes in agriculture and land use. Farmers may need to reconsider retiring from their business and renting out their land, as IHT relief on this land is now limited. Two key factors will influence land prices: whether buyers leave the market due to reduced IHT relief or increased CGT rates and whether the supply of land increases as it increases. becomes less interesting to keep land in retirement.
Q: Will there be any changes in the supply and rent of leased land?
A: The supply of leased land may increase due to reduced tax benefits of farmland on hand. However, it is not certain that this will lead to a reduction in rents, as the profitability of agricultural operations now strongly influences rent levels.
Q: Should farmers consider submitting succession plans?
A: Farmers may want to consider accelerating succession plans before April 2026 to take advantage of current reliefs. For example, transferring assets to a family member or into a trust and claiming 100% APR. However, we need to be careful about CGT as it could complicate things. The gift of assets is treated as a sale for tax purposes, potentially attracting 24% CGT on unrealized gains.
Q: What impact will the changes to business asset transfer relief have on transferred farms?
A: Business asset disposal relief will become less generous from April 2025. This change, along with IHT adjustments, could make it more difficult to keep farms within the family. Ms Millington notes that selling is not necessarily a solution either, as CGT applies to sales and any remaining proceeds may still be subject to IHT.
Next steps
With recent protests in London over these proposed changes, there is considerable pressure on the government to reverse these proposed changes. For now, they seem to be holding up.
It is imperative that you seek advice on this if you and your family are affected by the change.
At ETC Tax, we specialize in complex tax matters and, as such, we would be exactly the type of advisor you will need on your side as you plan your way out of these issues.
Contact us today!
The post It’s the farmer in the den! appeared first on Making Complex Simple.
