A significant Budget for agricultural businesses
Following the Chancellor’s Budget on 30 October, we examine the impact of the changes to inheritance tax, National Living Wage and more on farmers.
The reaction of farmers and the wider agricultural sector to Rachel Reeves’ first Budget as Chancellor illustrates the impact that the changes announced will have on their businesses. While many have protested in Westminster, we know that several more will be in touch with their accountant/tax adviser about the specific impact of the Budget and how to adjust their plans for the future. ICAS members in practice will have a crucial role in supporting their clients as they navigate the various changes – which go beyond the headline-grabbing change in inheritance tax status.
Changes for employers
Farming businesses who are employers will see an impact of the increases in the minimum hourly rates to be paid on employees. From April 2025, the National Living Wage for over 21s will increase to £12.21 per hour and the National Minimum Wage for 18-20 year olds to increase to £10.00 per hour. However, there could be changes still to be announced by the Scottish Agricultural Wages Board (SAWB) and equivalent bodies throughout the UK to the minimum rates for agricultural workers.
Additional salary costs for workers will have a direct impact on employer pension contributions for employees and earnings subject to Employer’s Class 1 National Insurance.
As well as that, the Chancellor announced that the Employer’s Class 1 National Insurance threshold will be reducing from £9,100 to £5,000 per year from April 2025, alongside an increase in the rate of Employer’s Class 1 National Insurance increasing from 13.8% to 15%. While the increase in Employment Allowance from £5,000 to £10,500 and the withdrawal of the £100,000 threshold for Employment Allowance will mean that 865,000 employers (according to government figures) will pay no Employer’s Class 1 National Insurance in future, the changes will have a significant impact on employers who will have to bear the additional costs. This will be particularly so for employers of part time employees, whose earnings might have previously been below the threshold for paying national insurance.
Changes to inheritance tax reliefs
Farmers looking to pass the family farm to the next generation will be concerned by the freezing of inheritance tax rates and bands for a further two years to April 2030 as well as the changes to Agricultural Property Relief and Business Property Relief from April 2026.
From 6 April 2026, the existing 100% rates of relief for Agricultural Property Relief and Business Property Relief will only continue for first £1 million of value of combined agricultural and business assets and a 50% rate will apply on the value of thereafter. Time will tell as to whether this influences decisions on when to pass on the family business to the next generation, but the reduced availability of Agricultural Property Relief and Business Property Relief may reduce the incentive to hold on to assets until death. But there will be other tax and non-tax issues to consider before reaching a decision on this – including whether the Gift with Reservation of Benefit Rules apply for inheritance tax and the loss of control of the assets by the donor.
Although the changes will apply from April 2026, anti-forestalling rules mean that lifetime transfers on or after 30 October 2024 will also be affected if the donor dies on or after 6 April 2026, if this is less than seven years of the date of the gift.
Changes to capital gains tax
For those farmers looking to sell their farm, the announcements on capital gains tax will impact on their post-tax cash flow on sale. The lifetime limit for gains covered by Business Asset Disposal Relief (BADR) was not increased (despite it applying on gains from 2008), and the tax rate for gains covered by BADR will also increase from the current 10% to 14% from 6 April 2025 and 18% from 6 April 2026.
Gains not covered by BADR will be subject to an immediate increase on Budget Day to 18% (for gains within the UK basic rate income tax band) and/or 24% (on any remaining gains).
The Finance Bill includes anti-forestalling rules to override the normal rules for the timing of disposals, where those disposals complete after a change in rate. Genuine commercial transactions should be unaffected by these rules.
Changes to the tax rules on double cab pick ups
Earlier this year, the previous government caused significant confusion when HMRC announced a change in its guidance on the benefit in kind and capital allowances treatment of double cab pickups. This meant that they would no longer follow the VAT rules and would be treated as cars instead of vans from July 2024, for it only to abandon the change a week later.
The government has now confirmed in the autumn Budget that double cab pickups will be treated as cars where they are bought from 6 April 2025, in a change to the initial ‘u turn’ announced earlier this year. This creates an element of uncertainty, but at least there is a short time for businesses to consider how the change will affect them and their employees before it is implemented.
We have welcomed the fact that vehicles purchased before that date will be able to continue claim the existing capital allowance treatment and that leased double cab pickups will be able to claim the existing treatment until 5 April 2029 (or the lease expiry if earlier).
Going forward, the change will have a significant impact on farming businesses in particular. By being treated as cars, it will no longer be possible for businesses buying such vehicles to receive a 100% tax deduction on purchase through full expensing (where the double cab pick up is new and used and bought by a company) or annual investment allowance (in other cases), because neither full expensing nor annual investment allowance is available on the purchase of cars.
The changes to the benefit in kind rules will also have a significant impact on both the tax liabilities of employees and the Class 1A National Insurance liabilities of their employer. Double cab pickups currently treated as vans will be subject to van benefit of £3,960 and van fuel benefit of £757, where fuel is provided for private use. The benefit in kind for cars will be based on a percentage of a list price when new and the scope of car benefit is more significant than van benefit.
The additional burden to those employers who will need to continue to provide these vehicles for genuine business reasons is significant as these vehicles have a high market value and engine size, and they will incur significant benefit in kind charges with further amounts of employer’s Class 1A National Insurance at 15% chargeable on them. It’s likely that people may consider cancelling fleet orders (as happened back in February) and considering alternative options. The double-cab pickup manufacturers will probably have to go back to the drawing board to make their vehicles lighter and more environmentally friendly. Scottish landed estates will be likely to need to consider their budgeting forecasts and make decisions about what to do going forward.
Let us know your views
We are always interested to hear from our members about the practical impact of the Budget on their practice and their clients. We also welcome your views more generally, which help inform our work on consultations or other tax-related matters. ICAS responds to many tax calls for evidence and consultations, as well as producing tax policy papers and reports. We also regularly attend meetings with HMRC at which service levels, delays and other issues are discussed, and we raise problems being encountered by members.
Please email tax@icas.com to share your insights and feedback.
