The Need for Immediate Action in Light of the 2024 Autumn Budget
Sarah Dodds · Posted on: November 26th 2024 · read
As the full impact of the 2024 Autumn Budget starts to sink in, it is clear that action will be necessary—especially for those in business and family farming. The changes introduced may not be immediately felt, but they will undoubtedly have far-reaching consequences for the agricultural sector in particular.
Some may be tempted to wait and see if a change of government will reverse these new policies. However, while a shift in leadership is not entirely out of the question, it’s important to note that there is no guarantee that a new government would undo these changes. The reality is that these measures are in place now, and waiting could mean facing harsher consequences in the future.
With the average age of male farmers standing at 59 and the typical family farm covering around 200 acres, many farms fall squarely within the threshold for Inheritance Tax (IHT). While the general life expectancy for a 59-year-old male is around 85, the demanding nature of farming often results in a shorter working life. This underscores the urgency of addressing these changes now, for tomorrow.
IHT Changes on the Horizon: What You Need to Know
The significant changes to IHT will take effect from April 2026, and they could be painful for many. Agricultural and Business Property have largely been eligible for 100% IHT relief since 1992, allowing family farms to pass on their assets without the threat of massive tax bills. However, from 2026:
- The 100% relief will only apply to the first £1 million of agricultural or business assets.
- Any excess will be subject to only 50% relief, meaning an effective tax rate of 20% on the remainder.
For example, a £5 million farm that includes stock, machinery, and working capital, which would have previously been fully relieved, will now face an IHT charge of around £800,000. This will be a significant burden for many, especially since the option to spread payments over 10 years may not make the tax bill any easier to meet. In fact, finding £80,000 per year for such payments, or even just the interest, could prove unmanageable for many struggling farms. It's also important to note that the reliefs, which have been framed as “loopholes” by some critics, were originally designed to protect family farms from exactly these types of pressures. The irony is that the new rules may impact commercial farming operations the hardest, while those purchasing farms as a lifestyle investment may remain largely unaffected.
Capital Gains and Pensions: What to Watch
In addition to the changes to Inheritance Tax, other adjustments are on the horizon, particularly with regards to Capital Gains Tax (CGT) and pension regulations. While some of the worst fears around the Budget have not materialised—such as the abolition of the CGT base cost uplift on death or the extension of the seven-year clock for lifetime gifts—there are still several considerations for succession planning.
- CGT reliefs like holdover and rollover relief will remain, along with the existing rules on trusts.
- However, businesses and farms will still need to reassess their strategies in light of the ongoing changes, ensuring that their planning is robust enough to mitigate future tax burdens.
Agribusiness
Read more about AgribusinessRead moreIt's also important to note that the reliefs, which have been framed as “loopholes” by some critics, were originally designed to protect family farms from exactly these types of pressures.
Returning to Traditional Succession Planning Tools
Given these changes, many businesses will now need to revisit the tools that were used in the past to plan for succession. Strategies that were once standard practice are likely to be more relevant than ever:
- Equalising estates to maximise the use of the remaining 100% IHT relief bands.
- Considering lifetime gifts to help reduce the value of the estate, ensuring more of the farm can pass to future generations.
- Reconsidering the value of trusts, which, though often costly and complex, can still offer significant protection from tax liabilities.
The reality is that these options may now be critical for safeguarding the future of the family business. These tools were designed to protect assets across generations, and they are just as relevant today as they were thirty years ago.
The Time to Act is Now
Succession planning has always been about recognising the inevitability of change and planning for it. The 2024 Autumn Budget has made it clear that this is no longer a distant concern, but an immediate challenge that requires careful attention. For those in farming and business, the time to act is now—before these changes come into full effect.
- Succession planning must be reviewed: In light of the upcoming IHT, CGT, and pension changes, it’s essential to reassess and update any existing plans.
- Consult tax experts: Having the right professional advice will be crucial for ensuring that businesses are structured in a way that mitigates tax risks.
- Prepare for the future: The new legislation is a clear sign that farms need to plan ahead—recognising that waiting could lead to larger tax bills and greater challenges.
As Rachel Reeves commented after unveiling the Budget:
I had to make big choices. I don’t want to repeat a Budget like this ever again.
This reflects the difficult decisions now facing many farm owners and business leaders. Taking the initiative now is key to ensuring that the family farm, or any business, is passed on successfully, with minimal disruption and financial strain.
Tax
Read more about TaxRead moreThe reality is that these options may now be critical for safeguarding the future of the family business. These tools were designed to protect assets across generations, and they are just as relevant today as they were thirty years ago.
