In his analysis of the Budget, Robert Sullivan, head of farm business at GSC Grays, says the Chancellor's announcement of changes to the inheritance tax regime has given land and business owners a lot to think about.

Inheritance tax

"Looking at inheritance tax first, the fact that APR (agricultural property relief) and BPR (business property relief) remain in place at all is a plus compared to some of the worst-case scenario predictions, but there’s no denying that this is going to mean fundamental changes to the succession plans of both farmers and business owners. Despite the government’s assertion that very few estates will be affected, that’s cold comfort given how important APR is to the farming sector.

"After April 2026, farmers won’t be able to assume that the entire farm can be passed on free of inheritance tax. The headline appears to be that landowners and business owners should assume that, aside from the unchanged Nil Rate and Main Residence Nil Rate bands, only £1m of assets qualifying for APR and BPR (combined, not £1m under each relief) will obtain 100 per cent relief. After that, IHT will be payable on 50 per cent of the value, meaning that the effective rate of tax will be 20 per cent (40 per cent tax on 50 per cent of the asset value).

"The detailed guidance released so far leaves questions unanswered, so it will be a case of awaiting more detail. The Chancellor did confirm that the previous Government’s promise to extend APR to land managed under an environmental agreement will be honoured, effective from April 2025."

Capital Gains Tax

"For Capital Gains Tax, rates will rise on disposals with and without the benefit of Business Asset Disposal Relief. In terms of what that means, much will depend on the detail as it emerges, but there will be interesting and perhaps far-reaching consequences.

"For some businesses, there will be little to no scope for taking action now without letting the tax tail wag the dog, and some might take the view that the Conservative party could return to power and reverse or soften the limits on relief before any tax event occurs. Other businesses will need to think carefully and fast, as there is a window of opportunity between now and April 2026 to take advantage of the current regime."

Business considerations

"Looking more generally, we would expect several key areas to come under consideration. The size, structure and asset base of businesses will be as relevant as before, if not more so, given the £1m threshold for relief. Land occupation patterns could change given the tax advantage of APR over BPR appears to have been closed. Farmers will now have to think even harder than before about retiring from their own business and letting their land, since IHT relief on that land will now be restricted."

Land values

"The impact on land values will probably hinge on two factors. The first is whether buyers who previously prized 100 per cent APR will find the low returns on investment unpalatable in the light of the reduced relief and start to exit the sector. The second is whether supply increases as the attraction of retaining land in retirement lessens. One significant plus for land values is that there appears to be no removal of holdover or rollover relief, keeping those purchasers in the market.

"For the let sector, the supply of let land may increase, with the advantage of farming in hand now much diminished in many cases. Whether that translates to excess supply putting downward pressure on rents is a very different question, given how influential farm profitability has become on tendered rents."