Jeremy's Blog 15th November 2024: Budget Confusion and Challenges

This article by Jeremy Moody first appeared in the CAAV e-Briefing of 14th November 2024

A fortnight on, the Budget furore continues as it raises money from business to pay for current public spending. Farming conversations see little talk of anything but the effects on farming of its restrictions on APR and, at least as importantly, BPR with the CAAV and others continuing to meet with the Treasury and DEFRA. By contrast, much of the rest of the 30 per cent of the UK economy that is private business does not yet seem to have taken the IHT challenge on board. Yet this is essentially an increase in the taxation of the private ownership of business, professional, commercial, industrial and agricultural, which also sweeps up APR and crowds out business investment and so what it might give do for productivity improvement.

In farming, initial shocked reactions see some purchasers withdrawing from transactions and other farmers cancelling or deferring investment decisions, compounded by the cash flow effect of the accelerated withdrawal of England’s delinked payments for 2025. This is after the governing party made an electoral point about inheriting a low level of farmers’ confidence.

One basic point is that this is an assessment of what the deceased owned in the business, not of the whole business, and after relevant liabilities. The expected tax take each year would be the equivalent of 7 per cent of the Total Income From Farming (TIFF) in 2023 but all taken only from business owners on death, never directly touching institutions, charities and other non-natural persons.

Confusion comes with inadequate explanations of the effects of the change and how they might be managed by some. For ministers to see an APR claim as the sum total of a farm is to miss the point that APR is only about land and buildings, leaving machinery, livestock, deadstock, other farming assets (even a hefted flock) and diversified activities for BPR (together with the other assets in a qualifying business). The lack of data given for BPR claims is concerning when we seek an informed debate. With APR taken first, the ￡1m will cover the land first and BPR assets will tend to be more exposed to tax, bringing close scrutiny of their valuation. Asking questions little touched for 30 years, that might not only be of conventional farming assets but of, say, rights and liabilities under a contract farming agreement or a diversified business.

Saying that 74 per cent of APR claims are below ￡1m says little other than that a lot of APR claims are small, not that they are farms – this sample being likely to average 50 acres if there are no dwellings or buildings. It says nothing conclusive about the business. Many claims are for landlords or licensors of fields, necessary for farmers renting or using the land; others are “lifestyle” units. Some will indeed be small intense farms and land owned by mainly tenanted businesses – these will have corresponding BPR claims adding to their value for IHT.

More confusion has come as ministers try to explain how a married couple would leave ￡3m tax free. If there are two owners, each could indeed have the benefit of ￡1m full relief though this is not to be transferrable between spouses. The rest assumes they have no personal assets for the Nil Rate Band and that, each with estate less than ￡2m, they have a house to give to a descendent. From April 2027, taxable estates are to be increased by any used pension funds. An attempt at a simple assurance only opens the issues.

The real variety of situations points to the need for professional work in business review, structuring and succession.

More widely, business is realising the impact of the cut in the threshold for Employer’s National Insurance and the increased minimum wage, especially for the food chain. Livestock markets, processors, restaurants and retail are all hit – the latter also by a near doubling in business rates.

While taxes are meant to be increased to 39 per cent of GDP, a level not seen in peace time, spending is to be 44 per cent. Even if that tax income is successfully raised, the Government will be back for more. Warnings are already given for DEFRA schemes and flood defences. Only serious economic growth gives an escape but the Budget has missed that. As a Bloomberg commentary put it: “Let’s say, for example, that you were given five years as chancellor to make Britain the fastest growing economy in the Group of Seven nations. Would you…

- Raise taxes on employing staff?

- Raise wages for staff at over three times inflation?

- Make it more burdensome to hire staff?”

Then the US election result, hard on the heels of the Budget, calls all forecasts into even more doubt. Even without tariff and other questions over economic activity and trade, any imperative to reach 3 per cent of GDP on defence will re-write budgets.