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The Autumn 2024 Budget is estimated to be one of the most tax-increasing budgets in recent history.
In this article, we'll look at the impact of selected major changes within the 2024 Budget affecting farmers. For a more comprehensive summary of measures, please see our main Budget article.
Inheritance tax: agricultural property relief
The Chancellor announced that 100% agricultural property relief (APR) and business property relief (BPR) will be limited to the first £1m of value from April 2026, with a relief rate of only 50% for value in excess of the £1m threshold.
The £1m limit will be achieved by making it a new allowance (not transferable between spouses). It will be divided between APR and BPR in proportion to the values of agricultural property and business property in an estate.
There is some time before the change is due to be implemented; time to take action in situations where there is concern about the restriction to inheritance tax (IHT) reliefs. Families need to be mindful that there are other serious considerations apart from inheritance tax planning, including:
Preservation of the farm
Divorce or other financial risk with the younger generation
Financial security for the older generation (who have built the business)
The successor’s capital gains tax (CGT) cost on selling property acquired during lifetime instead of by inheritance.
Nevertheless, we recommend that families in the following circumstances consider whether perhaps a proportion of the land value should be gifted on to the next generation before April 2026:
Where an older individual’s farm is worth substantially in excess of £1m.
Where an older couple’s farm is worth substantially in excess of £2m.
Where a farm is run by a larger partnership, but the older members’ interests are worth in excess of £1m each. This might be the case because the younger members’ capital accounts are small, or because land capital accounts have been used to keep the beneficial interests in the property with the older generation for security.
Where the older generation also have significant other assets qualifying for BPR.
Other planning considerations include:
It will often be advantageous for farm property to be owned by both spouses or civil partners, rather than in one name only. This is because the new £1m allowance will be non-transferable so any allowance that is unused on first death will be forfeited. Unlike some other IHT planning, property ownership cannot be adjusted after death by a deed of variation.
From April 2027, pension fund value remaining at death will be counted into the estate and this may sometimes forfeit the £175,000 residence nil rate band. The extension of IHT to pensions will make it more attractive to use pension funds to provide retirement income, rather than as a vehicle for wealth transfer to the next generation.
A period of reflection will be required, rather than taking immediate action. However, any decisions will need to be implemented within approximately the next year, so the planning exercise should start now. Earlier action also reduces the risk that a donor might not survive for the full 7 years that (s)he must outlive a gift for it to be excluded from their IHT estate (subject to conditions).
Please contact us if you would like to discuss your situation.
Capital gains tax rates
The Budget announced increases in CGT rates with immediate effect (ie from 30 October 2024) to 18% (instead of 10%) for basic rate taxpayers and to 24% (instead of 20%) for higher rate taxpayers. These same rates will apply for both residential and non-residential capital gains.
The reduced Business Asset Disposal Relief rate (currently 10%) will be increased to 14% from 6 April 2025 and 18% from 6 April 2026.
These changes will significantly increase the CGT payable on asset disposals.
Double cab pickups: tax treatment
Back in February 2024, HMRC announced that they would in future be treating double cab pickups as cars for certain tax purposes. Within a week, following representations from the farming industry, the last government overruled HMRC and gave assurance that the treatment as commercial vehicles (for double cab pickups with payload over one tonne) would continue.
Unfortunately, the Autumn 2024 Budget has reversed that decision. From April 2025, newly acquired double cab pickups will all be treated as cars for income tax and corporation tax purposes (including capital allowances and benefits in kind). Inter alia, this means that, instead of the purchase cost being (usually) 100% deductible for income tax in the year of purchase, only a 6% per annum writing down allowance will be available.
This change will dramatically upset the economics of buying a double cab pickup from April 2025. If you are looking to acquire such a vehicle, you should ensure it is delivered to you by 31 March 2025.
PAYE compliance
Perhaps the most widely reported Budget change is the reduction in threshold for employer’s national insurance contributions (‘secondary threshold’) from £9,100 to £5,000 annual earnings, coupled with the increase in contribution rate to 15% from April 2025. Combined with the hefty increases in national living wage for younger and apprentice workers, these changes will considerably increase the cost of employing younger and part time workers.
Historically, PAYE compliance has been weak in the farming sector. If error is identified by HMRC, the cost of a PAYE settlement can be severe because HMRC treat the actual pay as net of deductions, and charge the employer the PAYE and NIC that would have been deducted in arriving at that net pay, along with interest and penalties. In doing that, HMRC typically also go back 3 years (sometimes longer).
Where farmers have workers who are understood to be self-employed, we recommend reviewing their employment status. Even if the worker completes a self-assessment tax return and pays their tax liabilities, that does not mean that HMRC will accept that the employment status has been correctly assessed. HMRC have online guidance and a tool to help assess employment status – this is available at www.gov.uk/guidance/check-employment-status-for-tax
The Autumn 2024 Budget document confirms that government is recruiting 6,800 extra HMRC staff, including 5,000 tax compliance officers. PAYE enquiries may become more prevalent over the next few years and we recommend that farmers consider now whether they have ‘self-employed’ workers who should actually be ‘on the books’ and, if so, make arrangements to regularise their tax treatment.
Our payroll team can assist you with the administration of PAYE and auto-enrolment pension compliance if required.
What to do next?
Whilst we are experts in our field, every situation is different. This article is intended to be informative; we would encourage to you consider seeking professional and specific advice to best approach your exact circumstances.
Our friendly team are on hand to help if you'd like to discuss how any of the above measures may affect you.