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Autumn Budget 2024: What the IHT changes mean for Agriculture

26 November 2024

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The Chancellor’s Budget on 30 October contained measures which many rural families will find alarming and very worrying.

The government has estimated that only 28% of farmers will be affected by these changes, whereas figures provided by Defra suggest the true percentage might be nearer to 66%. At the time of writing there is increasing scepticism about the Government’s figure.

The concerns centre around agricultural and business property reliefs (‘APR’ and ‘BPR’) which for many years now have been uncapped and the cornerstone of a family’s planning to enable a smooth succession thus avoiding the break-up of the property. In essence the reliefs have provided 100% relief from IHT

The big change is that 100% reliefs will be capped at £1m in aggregate with the excess benefiting from 50%, an effective rate of IHT of 20%.

These provisions will apply from 6 April 2026 it remains the case that if a landowner passes away before that date, unlimited relief will still apply.

It is also important to note that the £1m relief is per person, and is not transferable between spouses /civil partners unlike IHT nil rate bands.

Even if one assumes an average value of £10,000 per acre – and this is a very conservative figure in many areas -  £1m equates to just 100 acres per individual and that does not take account of other assets such as buildings, plant and machinery, stock and the farmhouse.

Whilst it might be possible to pay the IHT in equal instalments over 10 years, there is the question of how this is funded given the level of farming profits, without selling or borrowing with the issues that are associated with these things. In many cases this will require in excess of 100% of the annual profit before tax and drawings to make the annual payment which will further increase the financial stress already being felt by farmers.

Whatever the ability to pay, it will also impact on investment decisions which will in turn damage the business and the economy, as well as affecting other businesses such as equipment suppliers. Banks might also have a view on existing and future debt should significant IHT liabilities look likely.

Trusts owning land are also expected to be affected by being limited to the £1m limit for 100% relief.  As we understand things at present – and there is a consultation expected in the new year - any trusts established on or after Budget day will need to share the £1m band.

All these things, if they come to pass, will mean that planning will be of increasing importance. Examples include, but are not limited to:

  • Maximising the £1m band for both spouses/civil partners
  • Spreading assets between the family
  • Planning for trust IHT charges at ten-year anniversaries
  • Revising Wills

Potential Planning

When considering planning, the good news is that opportunities remain as other rules are not being amended, such as:

  • The definition of a business qualifying for relief has not been changed
  • The lifetime gifting regime so that gifts are exempt after seven years’ survivorship
  • Capital gains tax reliefs on gifts, though in many cases not all assets will still qualify for reliefs as before
  • Taper relief which will continue to reduce the IHT payable where death occurs between three and seven years of a gift

A major concern is the potential impact on families where the landowner is elderly, in poor health or has lost capacity as they will feel that the rug is being pulled from under their feet.

Whilst it might not be possible to fully alleviate the impact of the provisions if enacted (and at the time of going to press the furore caused a month ago now continues) it will often be possible to reduce their impact with careful thought and planning.

Please contact a member of the Farms & Estates Team if you wish to discuss any of the above or your tax affairs more widely.