Autumn Budget opinion: A blow for farming?

Perhaps the kindest thing which can be said about Rachel Reeves’ first Budget from an agricultural perspective, is that it is was not quite as bad as some expected – but it still delivers a body blow to the industry at a time when income is falling, costs are rising and subsides are being withdrawn.

The good news is fairly minimal and is largely confined to Income Tax where the freezing of personal allowances will not be extended beyond 2028, and there are no changes to rates or allowances.

For those with employees (including Company directors) pressure will be felt in two directions – the National Living Wage (NLW) will be increased by 6.7% and the rates for the under 20’s will raise to £10 an hour. Even if existing employees are paid at rates above this, the NLW will tend to provide a base level and will act to push wages higher. At the same time, there are two changes in the amount of employers’ NIC: the headline rate rises by 1.2% to 15%, and the lower threshold falls from £9,100 to £5,000. Despite an increase in the employment allowance, which rises from £5,000 to £10,500, all but the smallest employers are likely to see an additional cost.

The bigger changes for the farming sector come from capital taxes. Capital Gains Tax (CGT) rates for non-residential property (currently 10% and 20%) will be aligned with the residential rates at 18% and 24% with immediate effect. For those retiring, the cap on Business Asset Disposal Relief remains at £1m but the current tax rate of 10% will be increased to 18% over the next two years, 14% from April 2025.

The worst news for the farming sector is probably the changes in Inheritance Tax (IHT). The existing thresholds will continue to be frozen for another two years, but 100% Agricultural and Business Property Reliefs (APR and BPR) will be capped at £1m, with APR and BPR assets above that level only being due 50% relief, an effective rate of 20%. Since the average farm in the UK is about 200 acres and the average age of UK farmers is 59, the impact of this change is significant. For a generation, farmers have been relying on 100% relief, but from April 2026 this will change – when one considers the value of the farmhouse and the working capital, the average farm could be facing a significant tax bill which wasn’t there previously. To make matters worse, from 2027 pension pots, currently tax exempt, will also come into the IHT net.

Clearly there will be more devil in the detail, but at first sight this looks like a pretty damaging blow to the UK farming industry. Farming has always been a capital-intensive business, which is why it has been eligible for special reliefs – limiting and reducing these allowances at a time when farming incomes are already under pressure will be very damaging. In practical terms it will mean that every farm in the country will need to review succession planning as a matter of urgency.