Partners in a farming business will face significant changes following the 2024 Autumn Budget. The increase in capital gains tax (CGT) rates, gradual reduction of business asset disposal relief (BADR), and changes to inheritance tax (IHT) will greatly impact tax planning for those in the rural sector.
Capital Gains Tax (CGT)
Farming partnerships are transparent for CGT purposes, meaning partners are treated as owning the underlying assets, such as farmland and machinery. When a partner retires or gifts a share of the business, they may be liable for CGT on their share of the increase in asset value. The lower rate of CGT increased from 10% to 18%, and the higher rate from 20% to 24% as of 30 October 2024. This means that a higher rate taxpayer realising a gain of £500,000 post-Budget would face a CGT liability of £120,000, up from £100,000 previously. Planning for these changes is crucial for rural finance management.
Business Asset Disposal Relief (BADR)
While there were concerns that BADR might be abolished, it remains available, albeit with changing rates. BADR reduces CGT on qualifying gains up to a lifetime limit of £1 million. Currently, the rate is 10%, but this will increase to 14% for gains realised after 6 April 2025, and to 18% from 6 April 2026. For farmers considering retirement, reviewing their tax position before these changes take effect is advisable.
Inheritance Tax (IHT)
Significant changes to IHT reliefs for agricultural property relief (APR) and business property relief (BPR) were introduced in the Autumn Budget. Previously, farms and businesses meeting certain criteria could qualify for relief at up to 100%, effectively exempting them from IHT. However, from April 2026, only the first £1 million of assets qualifying for APR or BPR will be exempt from IHT. The value above this threshold will only benefit from half of the relief, resulting in an effective IHT rate of 20% on assets over the £1 million threshold.
For farming families, this means the need for careful estate planning. Transfers between spouses and civil partners remain exempt from IHT, but on the second death, the new £1 million threshold will create IHT liabilities for estates exceeding this value. Families should review how assets are owned and ensure their wills are updated to align with the new rules to mitigate the tax burden.
Conclusion
The 2024 Autumn Budget brings substantial changes affecting rural finance. Partners in farming businesses should take proactive steps to review their tax positions and estate planning strategies. By understanding and planning for these changes, farming families can navigate the complexities of CGT, BADR, and IHT to secure their financial future.
For some time Farm & Country Finance has been a leader in the arrangement of the following types of farm finance:
- Farm mortgages
- Farm remortgages
- Farm loans
- Agricultural mortgages
- Agricultural remortgages
- Farm bridging loans
Where finance is required in respect of tax liabilities or changes in farm business ownership, please contact us for more information.