What the Autumn Budget means for farmers and landowners

Chancellor Rachel Reeves has delivered her Autumn Budget after weeks of
speculation about the contents. The following is a brief summary of some of
the key announcements with implications for farmers and landowners and our
understanding of them so far.

Overview

This is a Budget which has sent shockwaves through the rural sector and has
implications for both owner-occupiers and tenant farmers. It feels like a
very political Budget and the Government has signalled, through the changes
in inheritance tax and its decision to speed up cuts to basic Payments in
England, that bigger farms and rural estates will not get any special
treatment. In fact, due to their size / assets, they will be less
supported. The frustration and anger being expressed by those in the
land-based sector reflects the fact that even relatively small farms will
be caught by the new rules. There is also the problem that farming is a
fundamentally capital-intensive business with low returns, making funding
these liabilities difficult without undermining the viability of the
business.

Inheritance tax changes

The Government has announced that from April 2026 Agricultural Property
Relief (APR) and Business Property Relief (BPR) rules will be changed so
there will be 100% relief on the first £1m of assets and then 50% relief on
assets after that, which equates to an effective tax rate of 20%.

Dr Jason Beedell, Rural Research Director: “This is the most significant
change to the inheritance tax regime for a generation. It will be seen as a
major U-turn given promises were made ahead of the election that there were
no plans to change APR or BPR and Defra minister Steve Reed also made a
commitment just a couple of months ago to address low confidence and
provide stability for the farming sector.

“The Government has said the aim is to restrict the generosity of APR and
BPR for “the wealthiest estates”, but the £1 million nil rate band, applied
after any other general reliefs, will only enable around 100 acres to be
transferred free of IHT, so this will really hit working farmers and their
families hard. For an average sized farm (350 acres), the increase in IHT
liability could be around £0.5m. For a large farm (1,000 acres), the
increase could be around £2m. This comes at a time when farming businesses
are facing direct support payments being phased out even faster, extreme
weather events and market volatility.”

Rhodri Thomas, our Head of Rural: “The rationale of reliefs, like APR and
BPR, is that they help prevent the sale or break-up of a business to
finance IHT payments. Many farming businesses have relied upon these
long-standing reliefs to survive through multiple generations. We do not
have all of the details yet, but the change has significantly increased the
potential IHT liability on almost all farms, apart from the smallest ones.
We are likely to see a long period of tax and business planning to
understand the changes and to try to reduce the increased liability. We
expect it to lead to more transfers between generations before death and
also investigation of use of alternative business structures such as
companies by farming businesses, subject to any rules introduced to prevent
this. However, even with tax planning, we expect the change to lead to a
greater number of farming businesses having to sell land and / or other
assets to pay larger IHT bills.”

Sam Holt, Head of Estates & Farm Agency, on the possible impact of
inheritance tax changes on the farmland market: “The potential to benefit
from Agricultural Property Relief has been one of the many advantages of
buying UK farmland, so a change in the reliefs on offer will have some
impact. If farming businesses need to sell land to pay for inheritance tax
liabilities, then this will bring more land to the market, and if there are
fewer tax incentives to buy or own farmland, then demand may ease in some
areas. Tax is not the foremost driver of land prices, but it is an
important factor.”

Basic Payments in England

In another financial blow to farmers, Defra has also announced a much more
rapid phasing out of the de-linked BPS payments for farmers in England than
was previously expected.

Jonathan Armitage, our Head of Farming: “Most farmers had been expecting a
continuation of the existing path to a zero payment by 2028. In fact, no
farmer will receive more than £7,200 from next year. For a farmer who
received a payment of £100,000 (about 429ha) in 2020, the total payment
will be more than £40,000 less over the period 2025-2027 than anticipated.
This will clearly have a negative effect on farm businesses’ cash flows and
profits. Significant differences in approach are becoming clear between the
devolved administrations as far as future farm support is concerned.”
Agricultural support budget

Although the overall Defra budget is being increased in real terms over the
next two years, day-to-day spending has been cut by 1.9% per year.

The Treasury has flagged that Defra is facing “significant funding
pressures on flood defences and farm schemes of almost £600 million in
2024-25”. It said while the Government is meeting those commitments this
year, it will be necessary to review these plans from 2025-26 to ensure
they are affordable.

Jonathan Armitage, our Head of Farming: “We will look with interest at how
the day-to-day spending cut will be allocated within the department,
whether it will be made to departmental running costs or to spending on the
environment, food and rural areas. Defra’s budget has already been cut by
approximately 5% in real terms since 2009/10 and is relatively small
compared with other government departments. The land-based sector is being
challenged to deliver a wider range of nationally important outcomes and so
requires adequate funding. The current funding is almost all aimed at
environmental management, most of which either reduces farming income or
costs money to deliver or both. If farmers are to deliver the expected
transition to their businesses, Defra will need to deploy significant
resources to support farmers with some of the changes required.”
National Insurance Contributions and National Minimum Wages

As expected, it has been announced there will be an increase in employer
National Insurance Contributions by 1.2% to 15%. Many land-based businesses
do not employ many people, so they may find the increase in the employment
allowance on employers’ contributions will cushion the increase wholly or
partially. However, it could affect the growth plans of bigger businesses,
as it is estimated to increase the cost of hiring a new employee on an
average salary by about £600.

The Government has also confirmed a 6.7% rise in the National Living Wage
from April 2025, which increases the wages of a worker on this rate by
around £1,400 a year. The increase to £12.21 per hour is slightly more than
the £12.10 recommended by the Low Wage Commission. The reason for the
higher increase is due to recent strong earnings growth in the economy and
the policy target (of both Labour and the Conservatives) that the NLW does
not drop below two thirds of median earnings (so NLW is now £24,700, based
on the £37,430 median). The target was finally achieved this year after
almost a decade of above-inflation increases. There is a bigger increase of
18% for younger staff (18-20 years) to £10 per hour to get their rate
closer to the over-21 rate, and for apprentices and 16-17 year olds to
£7.55 (+18%). The UK’s rate is now above Germany’s, below France’s and
above the average of the middle 50% of OECD countries, according to the FT.

Jonathan Armitage, our Head of Farming: “The availability and cost of
labour is a serious issue for farming across all sectors. While we support
the improvement of incomes at the lower end of earnings, increases in the
minimum wage (almost 40% in the last five years) combined with increases in
National Insurance will do nothing to relieve this pressure.”