How the Autumn Budget Affects UK Agriculture and Rural Businesses
The UK government’s Autumn Budget brings updates that will have a significant impact on agricultural businesses and rural economies. The budget touches on areas crucial to farming operations, including agricultural support schemes, inheritance tax reliefs, and costs related to national insurance and energy efficiency.
Agricultural Budget
The government’s decision to keep the farming budget stable at £2.4bn for 2025/26 means that Defra can continue funding essential Environmental Land Management (ELM) schemes. A portion of this budget will also support productivity schemes, with an additional £10m for the Farming Recovery Fund. Despite concerns over potential cuts, the allocation supports key schemes like the Sustainable Farming Incentive (SFI), Countryside Stewardship, and Landscape Recovery. These schemes offer funding for environmental practices and productivity improvements, which are crucial as the industry faces increasing climate impacts and cost challenges.
Changes to Inheritance Tax Reliefs
The inheritance tax (IHT) update, effective April 2026, revises Agricultural and Business Property Reliefs. Farmers will benefit from a 100% relief on the first £1m of combined agricultural and business property; however, relief drops to 50% thereafter. These changes are likely to impact the vast majority of farms due to the asset values associated with agricultural land. This underscores the importance of planning now to reduce potential tax burdens. The decision to extend Agricultural Property Relief to land under environmental agreements from April 2025 is a welcome development, providing more options for rural estates to manage long-term tax implications. Planning with professionals is advised to ensure smooth succession and tax efficiency.
Increased Employer Costs: NICs and Wages
A 1.2% increase in Employers’ National Insurance Contributions (NICs), combined with a reduction in the Secondary Threshold, will affect labour costs. This increase, however, is slightly offset by a rise in the Employment Allowance for employers, now £10,500 per employee. This adjustment could impact rural employers heavily reliant on seasonal and full-time labour, especially in sectors like horticulture and livestock management. Careful financial planning can help manage these new costs, especially with wage increases from April 2025 that will further affect employer budgets.
Changes in Capital Gains Tax
Capital gains tax (CGT) will see increases, with the lower rate rising from 10% to 18% and the higher rate from 20% to 24%. This could affect landowners planning asset sales to reinvest or support cash flow. For farmers planning family succession, this may bring added complexity in passing down assets. Partnering with advisors who specialise in agricultural finance can help navigate CGT changes and mitigate impact on long-term investments.
Energy and Environmental Initiatives
The government has allocated £400m to support sustainable land use practices, including peatland restoration and flood defences. This budget also supports the Boiler Upgrade Scheme, which benefits farms investing in heat pumps and biomass boilers. The continuation of the fuel duty freeze provides relief for farms reliant on transportation. These initiatives underscore a shift towards sustainable practices and energy resilience, helping farmers adopt practices that protect against rising energy costs and environmental impacts.
Preparing for the Future
Navigating these budget changes requires foresight and planning. We would recommend all landowners seek professional guidance and support on adapting to new tax obligations and regulatory costs, from providers who understand the agricultural sector.