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This article first appeared in British Dairying.
In the Autumn Budget, the Government announced that it is going to reform Agricultural Property Relief (APR) and Business Property Relief (BPR) from 6 April 2026. These are critical tax reliefs for farming businesses and estates and the impact of these changes should not be underestimated.
Inheritance Tax (IHT)
On a lifetime transfer or on death, or on transfers out of trust, IHT is charged. The lifetime rate is 20% (unless the transfer is potentially exempt, for example, a gift to an individual) and the death rate is 40%. Both rates are subject to the available nil-rate band and various reliefs, notably APR and BPR.
In respect of transfers of agricultural property, where it was used for the purposes of agriculture and held for the required period it benefitted from 100% relief. If it was subject to a pre-1995 Agricultural Holdings Act tenancy the rate was reduced to 50%. In respect of transfers of business property, where it had been owned for two years it would also qualify for 100% relief. A reduced rate of 50% was available for transfers of control holdings of quoted shares as well as assets used in – but not owned by – a trading business.
For rural businesses and landed estates, APR and BPR have always gone hand in hand. BPR has often been used to ‘top up’ APR to the extent that the value of property exceeded its agricultural value or in sheltering investment assets used in a composite business which is mainly trading.
What changes are proposed to BPR and APR?
- Key changes to BPR and APR were outlined for implementation in April 2026:
- 100% relief will be limited to the first £1million of the combined value of agricultural and business assets for every person or pre-existing trust. Any agricultural or business assets above that threshold will be subject to IHT but at a discounted 50% rate. In other words, a rate of 20% IHT on death (reduced from 40%), and a maximum rate of 3% IHT for ten yearly and exit charges from trusts (reduced from 6%).
- The £1 million cap will be divided proportionally between agricultural and business property if the combined value of qualifying property exceeds £1 million.
- Certain assets that currently receive 50% relief (e.g., shares in controlling listed companies) will not count toward the £1 million limit. Similarly, AIM-listed shares will be subject to 50% relief starting in 2026 (reduced from the current 100%).
- The £1 million allowance will not be transferable between spouses, so careful estate planning will be essential to avoid wasting any of the allowance.
- The government also introduced anti-forestalling measures whereby transfers made on or after 30 October 2024 where the transferor dies within seven years and after 6 April 2026 will be caught by the new regime.
- The full implications for trusts are still being clarified, but it is expected that each trust will receive its own £1 million relief allowance, provided the trust was established before 30 October 2024. Trusts created by the same settlor after this date will share the allowance. The government have confirmed that they will be consulting on how the new legislation will apply to trusts, with further detail expected in 2025.
We await the draft legislation which will confirm more precisely how these changes will work in practice.
Other Budget measures affecting employers and small businesses
National Minimum Wage and Living Wage
- The Budget introduced a 6.7% increase in the National Living Wage, raising it to £12.21 per hour for workers aged 21 and over, effective from April 2025. Workers aged 18-20 will see a 16.3% increase, bringing their hourly wage to £10. While these wage increases are beneficial for workers, they will also result in higher labour costs for employers, including those in the agricultural sector. Farms with hourly workers will need to plan for these increased payroll expenses.
National Insurance contributions
- From April 2025, employer National Insurance (NI) contributions will rise to 15%, with a reduced threshold of £5,000 per annum. In partial compensation, the government has raised the Employment Allowance from £5,000 to £10,500. While this is designed to help small businesses manage the higher costs, the changes will still represent a substantial increase in the cost of employing staff, which could affect staffing levels and payroll management, particularly in labour-intensive sectors like farming.
Capital Gains Tax (CGT)
- The Autumn Budget also increased rates of CGT, with the lower rate of CGT raised to 18% and the higher rate raised to 24% with immediate effect. The new rates are aligned with the residential property rates, which remain unchanged.
- Changes were also announced to Business Asset Disposal Relief (BADR) which reduces the rate of CGT on qualifying gains made on disposals of businesses, subject to satisfying various conditions. The CGT rate for BADR will increase from 10% to 14% for disposals made on or after 6 April 2025 and will increase to 18% for disposals made on or after 6 April 2026.
- These tax changes may require farmers with significant capital assets to reassess their tax strategies, particularly those considering the sale of assets.
Stamp Duty Land Tax (SDLT)
- The Autumn Budget also raised the SDLT surcharge on the purchase of additional residential properties (such as second homes or buy-to-let properties) from 3% to 5% starting 31 October 2024. Similarly, companies purchasing residential property over £500,000 will see the SDLT rate increase from 15% to 17%.
Conclusion
The proposed changes to APR and BPR are profound and will require a review of strategy for many farming and business owning families. These are undoubtedly worrying times for farmers and there is a strong feeling within the rural community that the tax changes simply do not reflect the reality of what is required to sustain a viable farming business.
Faced with impending change, advisers have been considering what comes next, and how to plan ahead.
There are options. Valuable estate planning tools remain – the ability to gift assets in the hope of surviving seven years, structuring assets efficiently to maximise reliefs, and life assurance, to name a few. Farming families are going to have to carefully consider how and when to pass assets to the next generation – not easy, and there is a difficult balance to be struck between tax efficiency and retaining sufficient control (to ensure business continuity) and comfort in retirement.
Succession is often a delicate subject for families generally – conversations are put in the “too difficult” pile – but the timing of robust business succession planning has never been more important. We are helping to guide families through their options for mitigating this new challenge, to help ensure that viable farming businesses can still be transferred efficiently in the right circumstances.
Should you wish to discuss any of the issues raised in this article, please contact Iwan Williams or Vivienne Williams.
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