Agribusiness News January 2025 – Financial Matters

A year of political change

2024 has brought substantial shifts in the UK political and economic landscape. Following the UK General Election, the Labour Party secured a clear majority. This change in government has introduced a new set of priorities, culminating in the Autumn Budget on 30^th Oct. The Budget represents one of the largest fiscal pivots in decades, with significant tax rises and increased public investment aimed at driving economic growth and public service improvement.

On the international stage, the US Presidential Election in November 2024 has also introduced a change of dynamics in global markets – many of which have the potential to influence UK agricultural exports and input prices over the coming years.

Although inflation continues to ease, the ongoing restructuring of subsidy frameworks and the introduction of new taxation measures mean 2024 will be remembered as another year of uncertainty.

Fiscal policy

The Autumn Budget of 2024 echoes a more traditional Labour formula: increasing state investment funded through both higher taxation and borrowing. This departure from the last decade’s fiscal stance has introduced sweeping reforms affecting employment costs, capital taxes, and inheritance planning to name a few.

One of the most notable changes with direct relevance to farmers is the reform of Agricultural Property Relief (APR) and Business Property Relief (BPR) for Inheritance Tax (IHT). From April 2026, a new cap of £1 million will be applied to the combined value of business and agricultural assets qualifying for full relief. Above this threshold, assets will effectively be charged 20% IHT. While the basic principle of APR and BPR remains, this cap significantly narrows the scope of relief that many farming families have historically relied upon. With Scottish farming asset portfolios often well above this threshold, careful succession planning and restructuring of assets will become even more critical.

Employment costs are another pressure point. From April 2025, an increase in Employer’s National Insurance Contributions and a reduction in the secondary threshold mean higher staff costs. Simultaneously, the National Living Wage rise, along with moves towards a single adult rate, puts additional upward pressure on wage bills – particularly impacting sectors reliant on seasonal and lower-paid labour such as fruit, veg and poultry.

Capital Gains Tax rates are also on the rise, with standard and higher rates confirmed to increase and Business Asset Disposal Relief rates gradually rising over the coming years. For businesses considering restructuring, selling land, or transitioning to the next generation, the tax environment is undoubtedly more complex and costly.

In Scotland, the devolved budget echoed some of these pressures. While mainstay support such as BPS, Greening, LFASS, and certain agri-environment measures remain broadly the same, there have been no significant boosts. The Scottish Government’s approach, influenced by the UK’s larger fiscal framework, has been to hold funding steady in cash terms, equating to a real-terms reduction as inflation erodes value.

Looking ahead

As a short-term shock, inflation is expected to rise above 2% in 2025, before falling below in 2026/27. Current interest rate forecasts suggest a base rate of 3.5% by 2026.

For agricultural businesses, one of the most pressing future considerations is the practical implementation of the APR/BPR changes from April 2026. With a technical consultation expected in early 2025, farms should be engaging with professional advisers now to navigate these imminent challenges.

andrew.coalter@sac.co.uk, 07721 473 566