In a Budget plagued by trepidation on how the Chancellor might plug the ‘£22bn black hole’ with tax changes, the Budget announcements have seen several changes that impact landowners and rural businesses.
Increase in scope of agricultural property relief
Following the outcome of a consultation in March 2024, the Government has confirmed the extension to the scope of Agricultural Property Relief (APR) to land managed under an environmental agreement with approved bodies. This announcement is welcomed by landowners in providing certainty over tax treatment where they look to diversify their income streams and exploit their rural assets in different ways.
Landowners and rural businesses will be interested in the outcomes of the joint taskforce between HM Treasury, HMRC and industry representatives on the taxation of ecosystem service markets which was delayed following the change in Government.
Reform of inheritance tax reliefs
The biggest impact to rural businesses is the reform of key inheritance tax (IHT) reliefs, APR and Business Property Relief (BPR). From 6 April 2026, 100% IHT relief will only be available for the first £1m of combined agricultural and business property, thereafter this rate will reduce to 50%. This change is expected to net upwards of £500m per annum in taxes from 2028.
The reform covers transfers in lifetime, to an individual where the transferor dies within seven years or to a trust, and property in the estate at death. Trusts may see an increased IHT charge of 3% every ten years if all trust assets were eligible for APR or BPR. The Government will publish a technical consultation in early 2025 on the detailed application of the reform to trusts.
This reform does not appear to impact certain landowners and rural businesses where the rate of IHT relief was already 50%. The changes highlight that assets that automatically received 50% relief will not use up the £1m allowance, allowing this to be used against other qualifying agricultural or business property.
Whilst the reforms do not come in until April 2026, the documents published suggest there will be rules to prevent forestalling from 30 October 2024 where transfers are made and the donor is still alive after 6 April 2026. Before any action is taken, professional advice should be sought to ensure any transfers are effective for tax purposes and also achieve the intended outcome.
Rising costs of a rural labour force
Whilst the Chancellor announced an increase in the Employment Allowance from £5,000 to £10,500 for eligible businesses from 6 April 2025, many rural businesses will feel the financial impact of an increase in employers’ national insurance from 13.8% to 15% and the reduction in the threshold on which employers’ national insurance is due from £9,100 to £5,000 both from 6 April 2025.
Rural workers will often be provided with a vehicle for their duties and may be allowed to use these vehicles privately. Many of the vehicles will be those suitable for the duties of rural working such as double cab pick-ups (Nissan Navara, Toyota Hilux, Isuzu D-Max for example) and are classified as vans for tax purposes. Historically, the categorisation of the vehicle as a van led to a favourable tax position for the employee on the benefit they received from their employer. The Autumn Budget 2024 announced the Government will not introduce legislation to treat double cab pick-ups as goods vehicles and HMRC will update guidance to treat these as cars for tax purposes (subject to transitional arrangements).
This change could lead to increased tax and national insurance reporting and liabilities for both rural workers and rural businesses. Consideration of changing vehicles, to a commercial vehicle for example panel van or ATV, or not allowing private use by employees, may be required by rural businesses to mitigate the additional financial burden.
Expanding the rural property business
Many landowners and rural businesses will own residential property occupied by the owners and their families, workers or let to third parties. Where estate owners wish to purchase further residential property, the second property surcharge for stamp duty land tax (SDLT) will increase from 3% to 5% for transactions completed on or after 31 October 2024. The single rate of SDLT paid by companies or non-natural persons (e.g. discretionary trusts) purchasing residential property worth more than £500,000 will increase from 15% to 17% from the same date. With SDLT payable within 14 days of a relevant transaction, rural businesses should be aware of the additional tax payable on a purchase.
The Autumn Budget brought significant announcements in relation to inheritance tax (IHT) for landowners and business owners. While the existing nil-rate band and residential nil-rate band will remain unchanged, important reliefs for business property and agricultural property will be restricted from 6 April 2026. The inheritance of unused pension funds at death will also be brought within the scope of IHT.
IHT rate bands
IHT is a capital tax paid on the value of an estate on death and on certain chargeable lifetime gifts. The current rate of IHT is 40%.
An estate valued up to the nil-rate band (NRB) of £325,000 can be inherited without IHT. Any unused NRB of an individual can also be passed to their surviving spouse or civil partner. A further residential nil-rate band (RNRB) of up to £175,000 is available to reduce the value of an estate if a family home is left to direct descendants. Like the NRB, an amount of up to 100% of the unused RNRB can be passed on to a surviving spouse. A potential combined NRB and RNRB of up to £1m may therefore be available for a married couple whose joint estate is worth £2 million or less.
The Chancellor announced that the current NRB and RNRB will not change and has also frozen them at current thresholds for a further two years until 5 April 2030.
Business and agricultural property relief
Current rules allow relief from IHT for the value of trading business assets or agricultural land and property gifted during lifetime or held at the time of death. Broadly speaking, 100% business property relief (BPR) is available for a trading business, or an interest in a business, and unlisted shares in a trading company.
A 50% relief applies to some other forms of business assets, such as assets used by a trading business.
100% agricultural property relief (APR) is available for land or pasture used to grow crops or rear farm animals as well as associated property such as farmhouses and cottages. Relief can be restricted to 50% depending on the asset and tenancy arrangements.
Qualifying Alternative Investment Market (AIM) shares have historically qualified for 100% BPR, when held for more than 2 years.
Changes introduced
From 6 April 2026, the availability of BPR and APR at 100% will be limited to a total allowance of £1 million. The balance of qualifying assets will be eligible for relief at 50%. The rate of 50% applying to certain business and agricultural property will remain unchanged.
This new allowance will apply to the combined value of business property or agricultural property and will cover transfers during lifetime and the value of property in a death estate.
For example, the allowance could be divided across £750,000 of property qualifying for BPR and £250,000 of property qualifying for APR.
If the total value of the qualifying property to which 100% relief applies is more than £1 million, the allowance will be applied proportionately across the qualifying property. For example, if there was agricultural property of £6 million and business property of £4 million, the allowances for the agricultural property and the business property will be £600,000 and £400,000 respectively.
Assets automatically receiving 50% relief will not use up the allowance and any unused allowance will not be transferable between spouses and civil partners.
AIM shares will qualify for relief at 50%.
Anti-forestalling measures will be introduced in relation to lifetime transfers made on or after 30 October 2024 where the transferor passes away on or after 6 April 2026, meaning the £1 million limit could apply to those gifts.
The £1 million allowance also applies to trusts. Trustees of most trusts are liable to an IHT charge of up to 6% every ten years on the value of property held in a trust. There is also an exit charge when property leaves the trust. The £1 million allowance will apply to the combined value of property qualifying for BPR and APR within the trust, on each ten-year anniversary charge and exit charge. A consultation is expected in early 2025 covering the detailed application of these changes for property held in trust.
Settlors may have set up more than one trust comprising qualifying business or agricultural property before 30 October 2024, each trust would have a £1 million allowance for 100% relief from April 2026. The Government intends to introduce rules to ensure that the allowance is divided between these trusts where a settlor sets up multiple trusts on or after 30 October 2024.
Another update to IHT is that the Government will introduce legislation to extend the existing scope of APR from 6 April 2025 to land managed under an environmental agreement with, or on behalf of, the UK Government, devolved governments, public bodies, local authorities or approved responsible bodies.
Inherited pensions
Currently, the value of most pensions is outside the scope of IHT. From April 2027, the Government will bring unused pension funds and death benefits payable from a pension into an estate for IHT purposes.
While changes to BPR and APR were anticipated, the precise form of any changes was uncertain and did not feature in the Labour manifesto. Amid concerns that the relief could be removed entirely, it is welcome to see commitment to maintaining the relief in some form.
These changes will have a significant impact for the owners of private businesses and agricultural assets, as well as their families. Careful thought will now need to be given to how these businesses can be continued by the next generation, as well as how families will be able to meet the IHT liabilities they are now exposed to.
As an example, the estate of a qualifying trading business owner with unlisted shares valued at £11m would now have a potential exposure to IHT of £2m, potentially without other liquid assets to pay it. This could call the long-term viability of some succession plans into question, particularly if family members are faced with a decision of selling the business to settle an IHT liability.
Understanding your IHT exposure is therefore crucial, particularly if your estate includes high value business assets, agricultural land or an inherited pension fund.
What may have previously been exempt or covered by 100% relief, may now be chargeable and be exposed to IHT at 40%.
With effect from 6 April 2025, the headline rate of employers’ national insurance contributions (NIC) will be increased by 1.2% to 15%.
The secondary threshold will be reduced from £9,100 to £5,000 per employee and the employment allowance will be increased from £5,000 to £10,500 for eligible employers.
The Chancellor has announced that the headline rate of employers’ NIC will be increased from 13.8% to 15%. The same increase will also apply to Class 1A and Class 1B NIC rates that employers pay on the provision of taxable benefits to employees.
In parallel, the Government will reduce the secondary threshold (the earnings above which employers begin paying employers’ NIC on an employee’s earnings), from £9,100 per employee per year to £5,000 per employee per year.
The Chancellor also announced changes to the employment allowance, which can be used to reduce an employer’s NIC bill. The allowance will be increased from £5,000 to £10,500 per year and, in a move to simplify the system, the existing £100,000 eligibility threshold will be removed, This threshold restricted eligibility for the employment allowance to employers with a total employers’ NIC liability of less than £100,000.
All of the above changes take effect from 6 April 2025.
The Government has estimated that these changes will raise approximately £24 billion per annum over the next five tax years.
While the increase in employment allowance softens the impact for small employers, the employers’ NIC changes are likely to represent a significant additional cost for larger employers.
For example, an employer with an annual wage bill of £5,000,000 across 100 employees would currently have an employers’ NIC liability of approximately £564,000. From the start of the 2025/26 tax year when the changes are implemented, employers’ NIC costs in this example will rise to approximately £664,500, an increase of 17.82%.
In light of the increased costs from April 2025, employers who have not yet implemented pension salary exchange should consider doing so as the savings generated will become even more attractive from a tax perspective. Similarly, employers may wish to consider bringing forward the payment of bonuses to employees relating to the FY24 performance year.
Employers will also need to consider the wide-reaching impact of this change, including the cost of employee benefits and engaging with off-payroll workers.
The stamp duty land tax (SDLT) surcharge for purchasers of second homes and corporate purchasers of residential property, commonly referred to as the higher rate for additional dwellings (HRAD), will be increased from 3% to 5%.
In addition, the higher rate of SDLT for purchases of high-value property (value exceeding £500,000) by companies, and other corporate vehicles, will increase from 15% to 17%.
The HRAD will increase from 3% to 5% for land transactions with an effective date, usually the date of completion, of on or after 31 October 2024. In addition, for land transactions with an effective date of on or after 1 April 2025, the rates and thresholds for residential SDLT will change. The £250,000 threshold will decrease to £125,000, as planned. A rate of 0% will apply on consideration up to £125,000 and a rate of 2% on the consideration that exceeds £125,000 but does not exceed £250,000. The rates and thresholds will remain unaltered above £250,000, and the increased 5% HRAD will be applicable on top of these rates.
The higher rate of SDLT payable by companies buying high value property worth over £500,000 will be increasing by 2% to 17%. This penal flat rate generally only applies where property is acquired for a non-commercial purpose and relief is available for most developers and investors in property rental businesses.
It should be noted that SDLT only applies to purchases of land in England and Northern Ireland, and the increased HRAD rates do not apply to purchases of property in Scotland and Wales, where different, devolved, land transaction tax regimes apply.
As previously announced in the Spring Budget 2024, there will also be changes to furnished holiday lets (FHL). Currently, FHLs are treated as a business for capital gains tax (CGT), meaning favourable tax reliefs can be claimed such as a lower CGT rate of 10% under current business asset disposal relief rules. Other CGT reliefs, such as rollover relief, can also currently be claimed. For income tax purposes, full relief is currently available for loan interest.
From April 2025, the FHL regime will be abolished and the business will be treated as a normal rental business. This means the standard CGT rates of 18% and 24% on a disposal will apply and only basic rate tax relief for loan interest will be available when calculating taxable profits.
The SDLT changes were not as expected but a change of some description was anticipated. This will increase the SDLT bill for many property owners, although, it is worth noting that relief is still available for the purchases of six or more dwellings, which will be applicable in many commercial arrangements. However, this latest change, coupled with the removal of multiple dwellings relief earlier this year, will represent an undesirable increase on land transaction costs especially for smaller investors and developers.
It is also worth observing that there were not any associated substantive changes to the HRAD legislation, other than the increase of rates. This means that cashflow problems will be exacerbated for purchasers who must pay the HRAD on the purchase of a new residence and later reclaim it.
There was no mention of any changes to the first time buyers' (FTB) relief, or the non-UK resident surcharge as had been rumoured beforehand. However, it is expected that the thresholds for FTB relief will reduce back to £300,000 and £500,000 (from £425,000 and £6250,000) with effect from 1 April 2025, as announced by the previous Government, although this was not specifically mentioned.
Mandatory payrolling of benefits in kind will be implemented from April 2026, except for employment related loans and accommodation.
Other changes announced include updates to the van benefit and fuel benefit charges, treatment of double cab pick-up vehicles and the responsibility for accounting for PAYE on payments made to workers supplied by umbrella companies.
Payrolling benefits
First announced by the previous Government in January 2024, the Chancellor confirmed that the payrolling of benefits in kind will become mandatory from 6 April 2026. However, in a departure from the previous guidance, employment related loans and accommodation have been carved out from mandatory payrolling. It will still be possible for employers to prepare a Form P11D to report these benefits.
Car and van benefits in kind
Double cab pick-up vehicles with a payload of one tonne or more will be treated as cars for benefit in kind reporting purposes from 6 April 2025. This is a departure from the current treatment of these vehicles as vans, which followed a recent Court of Appeal judgement. Transitional benefit in kind arrangements will apply for employers that have purchased, leased or ordered a double cab pick-up vehicle before 6 April 2025, whereby the previous benefit in kind reporting treatment can be applied until the earlier of disposal, lease expiry or 5 April 2029.
With effect from 6 April 2026, the Government will introduce legislation to close a loophole whereby employees could circumvent the company car benefit in kind charge. It is targeting arrangements whereby an employer or third party sells a car to an employee, often via a loan with no repayment terms and negligible interest, and then buys the vehicle back after a short period.
The Government also announced updates to company car benefit rates:
From the start of the 2025/26 tax year, the van benefit charge, van fuel benefit charge and car fuel benefit charge multipliers will be increased by the September 2024 Consumer Prices Index rate to £4,020, £769 and £28,200 respectively.
Payments made to workers supplied by umbrella companies
The Government has announced a crackdown on tax non-compliance in the umbrella company market, which will make agencies responsible for accounting for PAYE on payments made to workers that are supplied by umbrella companies. Where there is no agency in the supply chain, the responsibility to account for PAYE will rest with the end client business, in much the same way as the IR35 rules currently operate. These changes will take effect from 6 April 2026 and further guidance will be published in due course.
Mandatory payrolling of benefits in kind brings advantages for both employers and employees. For employers, no longer needing to file P11D forms will reduce the administrative burden of compliance. Employees will be able to see the tax impact of their benefits in kind in real-time.
Further consideration needs to be given to the mechanics for more complicated benefits in kind (accommodation and employment related loans) and we await with interest further guidance from HMRC.
The changes to the responsibility for accounting for PAYE on payments made to workers supplied by umbrella companies are important, as they underline the necessity for employers to undertake sufficient supply chain due diligence when engaging off-payroll workers.
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