We Can Help You to Manage Change in Your Business: October 2024 Budget

The October 2024 budget has introduced major adjustments affecting family farms and rural businesses, particularly around tax, wages, and government relief. These changes present an opportunity to build financial resilience and prepare for the future through careful planning. The impact of these changes can be managed, but it requires strategic planning and possible restructuring to keep family farms financially stable and prepared for the future.

The following guide will help you navigate your way in managing and making informed decisions to support the longevity of your family farm:

Note: at this stage, our guidance is general, as each business has unique structures, goals, and financial needs. Consulting with a professional adviser is recommended so that strategies are tailored to your specific circumstances. This is a good time to:

  1. Evaluate Financial Structures: review your current financial setup to identify any adjustments that might help you better align with the new Agricultural Property Relief (APR) and Business Property Relief (BPR) relief limits. Look at eligibility for APR and BPR to help minimise inheritance tax (IHT) liabilities.
  2. Assess Business Operations: if you have diversified enterprises (e.g. farm shops or holiday lets), consider how these will fit within the new relief frameworks. Some assets may qualify for partial relief, so separating agricultural from non-agricultural assets can maximise benefits.
  3. Plan for Wage Changes: budget for upcoming wage increases and National Insurance Contributions (NICs) to better fit with your projected cash flow. Staying informed on wage requirements will help you maintain balanced operating costs.
  4. Seek Professional Guidance: consult with a tax adviser or agricultural financial planner to discuss potential restructuring options and customised strategies.

Key Budget Changes and their Impact on Farms:

  1. Inheritance Tax (IHT) Relief Adjustments:
  • APR Cap: APR now provides 100% IHT relief only on the first £1 million of qualifying agricultural and business assets. Asset value over this threshold is now taxed at an effective rate of 20%. This may result in substantial tax obligations for high-value farms, especially those planning generational transfers.
  • Instalment Payments: the 10-year instalment option for tax payment may ease the impact, but planning ahead is essential to meet these new obligations.
  1. Increase in Minimum Wage and NICs:
  • Minimum wage: from April 2025, the minimum wage for those over 21 will rise to £12.21.
  • NICs: employer NICs will also increase to 15%, affecting wage budgets, although a higher NIC allowance, £10,500, will offer some offset. Farms paying employees at or near the minimum wage may not feel the full impact, but higher salaries will incur higher costs.
  1. Reduced Business Rate Relief: for diversified businesses, relief on business rates will decrease from 75% to 40%. This change may impact farms with on-site businesses, e.g. farm shops or agri-tourism. You may have to reassess the costs and benefits of maintaining these operations.
  2. Cap on Basic Payment Scheme (BPS): a new cap limits BPS payments to £8,000 in 2025, reducing income potential for larger farms.

Managing Different Farm Structures:

  1. Sole Traders: farmers will benefit from APR on agricultural land up to £1 million at 100% relief, with anything above that eligible for 50%. For diversified assets, for example a farm shop, BPR at the reduced 50% relief may apply, which could increase inheritance tax (IHT) on non-agricultural parts.
  2. Partnerships: partners can claim APR on their share of agricultural assets, applying the new relief rates. Non-farming activities in the partnership may qualify for 50% BPR on assets over £1 million. Partnerships do offer flexibility in estate planning, but updates to partnership agreements may be necessary to meet the new rules.
  3. Limited Companies: farms in limited companies rarely qualify for APR, but shareholders may claim BPR on diversified businesses at the capped 50% rate. Limited companies have more IHT exposure for non-agricultural assets under the new rules, impacting estate planning.

Managing These Changes: A Case Study Approach

Using as an example a family farm of 400 hectares, valued at £6 million. The farm is managed by two senior-generation directors, with the younger generation employed but not yet in ownership roles. Here is how this farm could restructure to handle the new tax and cost pressures:

  1. Consider Ownership Restructuring
  • Trusts and Partnerships: transferring ownership through a trust allows gradual handovers without immediate tax obligations. Forming a partnership or limited liability company (LLC) can also facilitate gradual ownership transfers, staying within the APR cap and possibly reducing overall tax exposure.
  1. Maximise APR and Business Property Relief (BPR)
  • Valuation Management: conducting regular valuations helps with tax planning, especially under the £1 million APR threshold. Valuing specific land portions under different reliefs could optimise tax positions.
  • Separate Business Activities: keeping farming assets distinct from diversified business assets (e.g. shops or tourism activities) may help maximise available reliefs under APR and BPR.
  1. Strengthen Income Through Diversification
  • New Revenue Streams: diversifying into activities e.g. farm shops, eco-tourism, or renewable energy projects could help offset losses and reduce reliance on BPS payments, particularly important under the new cap.
  • Seek Grants and Support: opportunities remain through Countryside Stewardship and other programmes for rural businesses. These options could boost income without adding excessive tax liability.
  1. Prepare for Increased Payroll Costs
  • Plan for Wage Increases: with the rise in minimum wage and NICs, farms with employees at various income levels should prepare for these new costs. Farms may also explore automation or seasonal labour adjustments to manage these expenses.

Action Points for Managing Change

  1. Don’t Rush Decisions- take your time
    Tax policies may change over time, and mechanisms such as inheritance tax insurance or staged succession planning are available. Avoid immediate decisions until all options are reviewed.
  2. Invest in Succession Planning
    Creating a medium- to long-term plan is crucial for farms looking to pass ownership while minimising tax liabilities and preserving continuity.

Succession Planning Steps:

  1. Open Family Discussion: Engage everyone to understand shared visions for the family and farm’s future.
  2. Build a 10-Year Business Plan: Outline strategic goals, with clear roles and responsibilities.
  3. Regular Meetings: Hold monthly business meetings to track progress and support smooth transitions.
  4. Asset Transfer Agreement: Define who, how, and when assets will move between generations.
  5. Get Support: Use mediation or coaching to help navigate the succession process effectively
  6. Explore Consultation-Dependent Changes
    Some policies are still under consultation, so staying informed about these developments may reveal future options for farms aiming to manage inheritance taxes effectively.

If you would like to benefit from ARC’s support, please contact our team who can provide you with family mediation, financial support and business advice

This document is for general guidance and does not cover every unique aspect of each farm business. For a customised approach, specific professional advice is highly recommended.