Since its announcement on March 6, Jeremy Hunt’s spring budget has divided opinions amongst farming organisations, with many of the key points directly impacting farmers and landowners across the UK.
Mr Hunt’s update, which began with an acknowledgment of the financial crisis, pandemic and energy shock caused by the ongoing conflict in Ukraine, stated that permanent cuts in taxation would be made to help families in a difficult position.
Whilst the announcements do spell positive change for the farming sector, there is still some skepticism as to whether it will provide the full stability required, especially as a change to the taxation of FHLs (Furnished Holiday Lettings) will impact an important element of many diversified businesses.
As such, this article will break down all the key agricultural announcements that came as part of the budget, analysing their potential impact on farmers and landowners both in the short and long-term.
Agricultural Property Relief
During the budget, Mr Hunt announced that the existing scope of Agricultural Property Relief would be extended from 6 April 2025 to land managed under an environmental agreement, either with or on behalf of, the UK government, devolved administrations, public bodies, local authorities or approved responsible bodies.
According to NFU president, Tom Bradshaw, the extension of APR to land in ELM schemes is beneficial in the sense that it gives farmers more choice about how to utilise their land, removing a barrier of entry for a number of businesses.
That being said, it appears the same relief will also apply to other environmental land use, which could impact the level of productive farmland being removed from agricultural use. Some also believe it could incentivise owners to take land out of farm business tenancies, whilst encouraging private buyers to purchase land and enter into environmental schemes.
The government has also vowed to establish a joint HM Treasury and HMRC working group alongside industry representatives, providing clarity on the tax treatment of ecosystem service markets. Of course, this could enhance process transparency but the long-term impact of the move remains to be seen.
Furnished Holiday Lets
In a bid to level the playing field between short-term and long-term lets, the government also announced plans to abolish the Furnished Holiday Lettings tax regime – a move that could stifle businesses that are actively creating jobs in the rural economy, says Country Land and Business Association president, Victoria Vyvyan.
In her opinion, property owners contribute to the local community’s economic vitality by converting unused or underutilised properties, that may not be suitable as homes in the private rented sector, into high-quality holiday accommodations.
In their current form, the tax rules for Furnished Holiday Lets provide a crucial support mechanism, strengthening the resilience and viability of many farms and rural businesses by enabling them to invest in their work of looking after the environment and feeding the nation. As such, Ms Vyvyan argues that the removal of this tax relief shows a blatant disregard for small rural businesses that often have narrow margins and face pressure to reinvest.
Given that the relief applies to qualifying furnished properties that are available for short-term holiday letting, it has previously given owners access to CGT reliefs such as rollover and gift relief, capital allowances on furniture, equipment and fixtures, and a full deduction against income for related financing costs.
As such, its removal is certainly a blow for many in the sector, especially as profits from FHLs also counted as earnings for pension saving purposes. For property owners that were relying on FHL properties and businesses being classed as trading for Inheritance Tax (IHT) planning purposes, the long-term impact could be significant.
Agricultural funding and tax changes
As part of the budget, it was announced that £427 million of government funding will be used alongside private sector investment to support agricultural productivity and innovation in 2024. The government has also committed £75 million to Internal Drainage Boards to bolster investment in water and flood management assets.
Not only will these investments help protect agricultural land from the impact of floods and storms, but it is hoped that it will put the sector on an upwards trajectory for years to come so that it can cope with any pressures or challenges encountered along the way.
From a tax perspective, it has been announced that from 1 April 2024 personal representatives of estates will no longer need to have sought commercial loans to pay Inheritance Tax before applying to obtain a ‘grant on credit’ from HMRC. The government also announced its long-term intention to move to a residence-based regime for Inheritance Tax.
Meanwhile, the higher rate of Capital Gains Tax (CGT) on residential property has also been reduced from 28% to 24%, which some experts view as a way to bring more residential property onto the market and encourage the sale of second homes. However, the sale of a second home can be complex if it forms a vital part of a diversified working rural business that is already under pressure from rising costs and sector-related uncertainty.
