Straight on the heels was the government’s announcement that proposed Inheritance Tax (“IHT”) reliefs would be uplifted from £1 million to £2.5 million per individual for agricultural and business properties. For values above this, IHT is charged at 20% (as opposed to the standard rate of 40%). In addition, this allowance is also now transferable between spouses, acting in a similar manner as the Nil Rate Band (“NRB”) available to everyone. It should not be underestimated the significant impact such changes will have on agricultural businesses.
For many (most) farms, these allowances now likely cover all or the vast majority of assets. Furthermore, farms with assets worth over £5.65 million (when combining spousal transfers and NRBs) are likely to have the financial capacity to either pay tax due in 10 yearly instalments, take a loan or life insurance, or have appropriately planned ownership to mitigate tax bills. It is often said that IHT is a tax on those who do not plan, but perhaps more appropriately it is a tax on those who could not afford (or choose not) to pay for professional advice.
Whilst strictly outside of the purview of the review by order of government, it is clear from the industry responses to Batters that the looming IHT changes were the foremost concern for many farmers. Since the Autumn 2024 Budget, when IHT changes were announced, frantic action has overtaken the industry, with businesses and families assessing their operating structures, ownership, and liabilities more honestly than has often been done for a generation.
Whilst these actions were undoubtably taxing for many, and often heavy on consultant fees, I wonder if such actions are a benefit to our sector in the long run. If we are honest with ourselves, British agriculture has lagged, even behind the underwhelming productivity of the wider economy. Batters’ review confirmed that the 22% of the lowest performing farms had no business plan at all. More concerning, 60% of all farms had only an informal business plan. A combination of factors has led agriculture, and the families at its heart, to avoid structural reform and business evolution for a generation. Whilst a heavy cudgel to encourage activity, the IHT changes certainly made people sit up and listen.
Bidwells have advised a number of family businesses on how best to mitigate potential IHT bills. A key part of these discussions has been the strategic review of the business, assets, profitability, and sustainability (in the broadest sense). Proper planning is key and is fundamental for all successful businesses. I suspect that whilst these actions were driven to begin with by the IHT changes, that they have initiated now a wider programme of review and analysis.
The immediate concern of a large IHT bill, has for many reduced from focus. However, what cannot be allowed to do likewise is the good work put in place by families, honestly appraising their businesses. The creation of a defined and realistic business plan is essential for success. And British agriculture could do with more success in the years ahead.
