What are the proposals for change?
The government announced in the Autumn budget on 30 October 2024, radical changes to the position of inheritance tax for farmers. The existing rules on Agricultural Property Relief and Business Property Relief will remain until 6 April 2026.
From April 2026, the proposed reforms to Agricultural Property Relief (APR) and Business Property Relief (BPR) will take into effect. Moreso than in any budget prior, Agriculture featured more than ever.
Delinked Payments for BPS
The reduction in delinked payments took an acceleration, with a confirmed 76% reduction, with a cap on all payment at £7,200 for 2025. DEFRA have stated this will release money to environmental schemes, and some small tweaks since the budget announcements has seen the simplification of some scheme entry routes. The options for income streams outside of BPS remains very much based on environmental measures, and there is indeed a number of available options, with varying levels of commitment, payment rates and complication.
Changes to APR and BPR
Taking the spotlight however, and for many clients also much concern and worry, were the changes to APR and BPR.
The principles of the reliefs remain unchanged at present, however the relief is now only available on the first £1,000,000 of assets. Any amounts above this are at 50% relief and at 20% tax rate.
Given the price of agricultural land in many areas far exceeding £10,000 an acre, a significant number of farms will find themselves sat outside of this £1million threshold. In an example where the land, dwellings, machinery, animals and other assets amount to £4m, a tax bill of £600,000 is calculated based on the changes. Farm businesses are extremely worried about being able to find such amounts of cash and in many cases, this is not achievable.
Voices of concern, frustration and anger are being heard, not only from the farmers on the ground, but also that from lobbying groups, advisors, social media influencers and more. The tone and level of concern is so far spread that there are mass lobbying events planned in London. It is hoped that the reasons for these concerns are heard by those who make the decisions within government.
Whilst we hope for a better outcome for farmers, in the meantime, good advice with professional perspective will be important.
The valuations we carry out to arrive at a property value may be more argued because they will matter more. We will need to think about business structures within farming enterprises and consider how our clients can be placed in the best possible position.
It has recently been commented by the CAAV (Central Association of Agricultural Valuers) that the impact of these changes also do not stop at the farm gate. Increased rates on pubs and other hospitality, retail and leisure properties combine with increased employment costs to test businesses that are often already stretched.
Estimated by the CLA that around 70,000 farms could be impacted by these changes, it is being questioned where the rationale was made to “support smaller family farms”, with Rachel Reeves commenting that three quarters of farmers would not be affected. The reality is that family farms would end up being fragmented to pay for a IHT bill – a world away from what was thought to be the case when the budget decisions were made. The government seem to have also missed that their important agenda of environmental measures will be lost too. In a world of climate change and environmental protection being so important we really are asking if this government really does understand the importance of the agricultural industry at all?”
We continue to understand the proposals in a more real life context, and see what options are available to our clients, working closely with agricultural accountants and solicitors in a bid to keep the Great British Agricultural Industry safe from threat.