Changes to Agricultural Property Relief and Business Property Relief

It would be remiss not to start with the APR/BPR reform though, due to the fact the current Defra Secretary of State, Steve Reed, told delegates at the CLA Conference in November 2023 that “Labour has no intention of changing Agricultural Property Relief”.

For many businesses, APR and BPR was a default position and the reliefs relied upon from the inheritance tax mitigation toolbox. For some farming businesses, this meant succession planning was rarely more than a thought.

Our family farming business falls into the category of reliance and whilst succession planning was discussed, it remained a discussion with no alternative plans installed. With a father at 77 years old these reforms are forcing alternatives to be explored. I fear it is too late for my generation; by the time we get a plan, I’ll be thinking of my own succession planning and that is being cited by the government as a reason for reform.

We need to review the detail of the proposals and we understand there will be a technical consultation early next year around specific impacts on trusts and gifts linked to trusts rather than the concept overall. The implementation will follow in April 2026. However, options could include reviewing the business structure to mitigate any impacts and, the seven year lifetime transfer relief has been unchanged. Where this is not available the options to cover the tax demand include repayment over 10 years interest free or, we may see land being brought to the market to cover the tax burden.

A number of stakeholders in the industry have mooted the idea of the government supporting those older generation farmers with transition times/relief where options for planning are now limited due to their age.

The impact on land values

A big question now on everyone’s lips is what impact does the reform have on land values. The assumption is that the benefit of investing in land due to the tax reliefs has diminished. Once more detail has been released and the options explored, we will understand the tax relief options available to ensure land remains a tax efficient investment. Additionally, with the range of demands from land we will continue to see a range of purchaser types in the market who will have their own reasons for investing in land notwithstanding the tax benefit. From Savills rural research data, 54% of buyers in 2023 were non-farmers.  

So far in 2024 we have seen a softening of land values compared to the same period in 2023 and this has largely been driven by uncertainty in the marketplace with a general election, budget review and agriculture transition. The emergence of certainty by the government regarding future priorities will underpin future values in the market. Ultimately, it will take a material change in supply and demand dynamics to significantly impact pricing and time will tell if that will be the case. We can only focus on the knowns. And what we know is that land is in demand. 

Land as an asset class continues to remain a good investment opportunity for a number of reasons:

1. as a hedge against inflation
2. as a vital component to the government in achieving multiple targets e.g. environmental, development, energy and food production. Land is in demand
3. as a favourable hedge against tax demands compared to some other asset classes

Additional impacts on farming businesses

Onto matters I believe are running under the radar and which will impact the operation of businesses. 

The increase in minimum wage and employer national insurance contribution will significantly impact many. The impact will be a slowing of growth, as costs increase there will be less capital available to invest in the growth of businesses. 

More imminent is the acceleration of cuts to the delinked payment. 2023 was the last year of the Basic Payment Scheme (BPS) with 2024 seeing a drop in payments received through the delinked payment (based on the average of the reference period 2020 – 2022). The proposal was to continue reducing the payments until 2027; however, the autumn budget announcements have accelerated the reduction. A 76% reduction will be applied to the first £30,000 of a payment, and the element over £30,000 is being cut entirely. Therefore the maximum payment in 2025 will be £7,200. Businesses will need to plan for this cash flow impact.

Further information

Contact Kelly Hewson-Fisher