NEW GOVERNMENT, NEW BUDGET, NEW PROBLEMS - CRUNCH TIME

The recent UK Budget has introduced several key changes that will severely impact the uk’s farming community, all the small and medium-sized businesses (SMEs), and many family-owned businesses. The adjustments to capital gains and inheritance tax (IHT) are likely to have fairly sizeable effects and will create additional financial planning complexities, all the while offering increasingly limited benefits to the agricultural sector.

Kerr Starmer’s campaign seemingly promised to stand behind local businesses and family run enterprises, nothing fits this criteria better than British farmers, but with the introduction of a new inheritance tax this is yet another industry that is going to suffer at the hands of our government. Much of the frustration felt by the agricultural community following his proposals centres around the relief that farms used to have protecting the farms for future generations and allowing them to pass the business, land and property from one generation to the next and therefore maintaining the food production within the UK. This doesn’t just bring financial challenges, but it threatens their way of life, one that has in many cases existed for many generations. Potential land sales to wealthy individuals and corporations will further change the landscape of the UK for future generations. The potential value in land is increasingly in building plots rather than for agricultural purposes, but with a lack of investment into infrastructure in many of the smaller communities, this is not beneficial to anyone long term.

The new budget now caps the full IHT relief on agricultural and business properties at £1 million. With land values alone this means that the majority of farms are considerably over this threshold. Therefore, for larger farms, this could lead to substantial tax liabilities and estate planning which will be more challenging, particularly for those who cannot transfer assets early enough to avoid taxation. The government is introducing an extension of Agricultural Property Relief (APR) for environmentally managed lands, which offers a positive note, albeit one that may not offset the broader tax burdens on higher-value estates. The number of farms capable of fitting the criteria for ‘environmentally managed’ though will be slim.

For business assets, the CGT will increase gradually, impacting farmers and SME owners looking to pass on or sell parts of their business. Lower rates have been raised to 18%, and the main rate is now 24%, effective as of October 2024. This could influence the liquidity of agricultural assets, as selling might involve higher tax bills, potentially discouraging growth or transitions to new business models in farming and family-owned enterprises

The conclusion is that UK SME’s whether agricultural, construction based or otherwise are going to have to continue to be proactive in finding new ways to grow their businesses and save on costs that haven’t historically been challenged for some time. Mitigating costs will be vital in the survival of these companies.