Budget 2024: IHT relief cut for farmers

On 30 October, Chancellor Rachel Reeves unveiled Labour’s first budget in over 14 years, with a number of measures announced that will impact businesses and individuals, including farmers and landowners. In this blog, we outline some of the key changes to be aware of.

The Chancellor says the measures set out in the Budget 2024 aim to ‘restore economic stability’ and will help rebuild Britain by boosting public investment by over £100bn over the next five years.

But many of these changes will come as rude awakening for business owners, many of which will be heavily impacted by the £40bn worth of tax rises announced yesterday.

National Insurance: employer contributions

Employers’ National Insurance contributions will rise from 13.8% to 15% in April 2025, and the threshold at which they must pay it will drop from £9,100 to £5,000.

In a bid to protect smaller businesses, the Employment Allowance has been raised from £5,000 to £10,500, meaning 865,000 businesses will not pay any NI at all next year, with another one million paying the same or less as they did previously.

Business Property and Relief (BPR) and Agricultural Property Relief (APR)

The government announced a significant reduction in Business Property Relief (BPR) and Agricultural Property Relief (APR) reliefs. 100% relief will be restricted to the first £1m and thereafter assets over £1m will get 50% relief, with an effective rate of inheritance tax (IHT) at 20%.

The measures, which will take effect from 6 April 2026, will apply not only to charges on individual’s deaths but also affect lifetime transfers into trusts or gifts to individuals where the donor does not survive for 7 years, in addition to decennial and other charges for relevant property trusts.

The reforms are expected to affect around 2,000 estates each year from 2026 to 2027, with around 500 of these claiming Agricultural Property Relief.

Of the changes, John Rouse, partner in Lodders’ Private Client team, says: “Like the rest of the country, we will take time to digest and analyse the Budget over the coming weeks. Some immediate thoughts are that businesses will need to prioritise succession planning, particularly for assets exceeding £1m, by transferring them to the next generation at least seven years before death to maximise inheritance tax efficiency, rather than relying on passing assets via will. Evaluating partnership and company structures may also facilitate a smooth transition of assets, while preserving control for the parent through voting arrangements, such as a “golden” vote.

“For married couples, it could be advisable to restructure wills to ensure that assets qualifying for APR or BPR on the first death pass directly to the next generation rather than to the surviving spouse, thereby minimising the value held in the latter’s estate. Equalising farming or business assets between spouses may also help secure relief on the first death and maximise the overall available reliefs.

“Lastly, do not overlook lifetime trusts, which are also an effective vehicle for transferring farming or business assets to the next generation in a tax-efficient manner, while ensuring continuity and control.”

Inheritance tax

Inheritance tax thresholds will be fixed at their current levels for a further two years until April 2030. From April 2027, inherited pension pots will be subject to inheritance tax. According to the government, this removes a distortion which has led to pensions being used as a tax planning vehicle to transfer wealth rather than their original purpose to fund retirement.

Capital Gains Tax

For higher rate tax payers, on assets such as shares, capital gains tax will increase from 20% to 24%. For lower rate tax payers, it will rise from 10% to 18%. On residential property, the rates will remain at 24% and 18%. Increases that apply to Business Asset Disposal Relief and Investors Relief are to be announced next year and beyond.

Business Asset Disposal Relief

To ‘encourage entrepreneurs to invest in their businesses’, Business Asset Disposal Relief (BADR) will remain at 10% this year, before rising to 14% on 6 April 2025 and 18% from 6 April 2026-27.

National Minimum Wage increase

The Chancellor confirmed an increase in the minimum wage, starting from April 2025:

For over 21s, the National Living Wage will increase by 6.7%, rising from £11.44 to £12.21 per hour. For those aged 18-20, minimum wage will rise from £8.60 to £10.00, and apprentices’ wages will rise from £6.40 to £7.55 per hour, representing the largest increase.

Income tax

There were widespread predictions that the Chancellor might maintain the freeze in income tax thresholds beyond 2028-29, but it was confirmed that after this period, they would rise in line with inflation.

Non-dom tax status

The non-dom tax regime will be abolished from April 2025, with a new residence-based regime replacing it. According to the OBR, reforms to the non-dom regime will raise a total of £12.7bn.

Stamp Duty Land Tax

From today (31 October), the Higher Rate for Additional Dwellings surcharge of Stamp Duty Land Tax will rise from 3 to 5%.

VAT on private school fees

The government will introduce 20% VAT on education and boarding services provided for a charge by private schools from 1 January 2025. The government will also remove business rates charitable rate relief from private schools in England from April 2025. 

Advice on changes announced in the budget 2024

If you want advice and guidance around any of the measures announced in the budget 2024, and how they might impact your affairs or estate, please get in touch with Lodders’ expert lawyers.