Tax Update – Spring Statement 2026

1. Overall economic backdrop

The Spring Statement confirmed a relatively subdued economic outlook.  The OBR’s central forecast points to lower growth in 2026 than had previously been expected. While inflation is forecast to fall back towards target, this should not be confused with falling prices.

For farming businesses, many costs have already rebased at a higher level.  Lower inflation may reduce the pace of future increases, but it does not bring labour, contracting, repairs, fuel, fertiliser or finance costs back to where they were.

The Chancellor is still operating with limited headroom against the Government’s own fiscal rules.  While there may not have been any major new tax increases in the Spring Statement, the wider fiscal position means that existing tax-raising measures remain firmly in place.

 

2. Scottish agricultural support

In Scotland, direct agricultural support has remained relatively stable compared to the rest of the UK, with the Scottish Government continuing to signal support for the direction of travel set out in its Rural Support Plan.

Following the May election, a successive SNP-led administration would be expected to maintain broadly the same course, giving Scottish farm businesses a degree of policy continuity that is currently absent in some other areas of tax and economic policy.  However, stable support should not be confused with increased profitability.

 

3. Inheritance Tax and succession

Although the Spring Statement did not introduce further major changes to Agricultural Property Relief and Business Property Relief, the reforms previously announced remain highly significant and are now in effect.

From 6 April 2026, the first £2.5 million of an individuals combined agricultural and business property will qualify for up to 100% relief from Inheritance Tax.  The allowance will be transferable between spouses and civil partners, meaning a couple may be able to pass on up to £5 million of qualifying agricultural and business assets before other allowances are considered.

For assets above that level, relief will be restricted to 50%. As IHT is charged at 40%, this broadly results in an effective IHT rate of 20% on the value above the available allowance.

The increased £2.5 million allowance and transferability between spouses are welcome improvements when compared with the earlier proposals.  However, they do not remove the issue altogether.  The key point is that succession planning can no longer be left until late in life.

Farming families should review:

• Wills
• Partnership agreements
• Company structures
• Ownership of land and buildings
• Tenancy arrangements
• Loans and security
• Diversified business assets
• Life assurance
• Retirement and income requirements for the older generation

The transferability of the allowance between spouses helps, but it is not a substitute for proper planning.  In many cases, the difficult questions will not simply be tax questions, but family and business continuity questions: who is taking the business forward, who owns what, how non-farming family members are treated, and whether the business can withstand any future tax liability.

 

4. Fuel, energy and the 21 May statement

Rachel Reeves made an additional statement on 21 May 2026 as a response to the cost-of-living increases arising from the Middle East conflict.

The statement outlined that duty on red diesel would be cut by over a third until the end of 2026.  From 15 June, the red diesel duty rate will fall from 10.18p to 6.48p per litre until the end of 2026.  This is a welcome measure for agriculture with red diesel forming a significant input cost for many farms.   However, the measure is temporary. It should be treated as short-term relief rather than a structural change in the cost base.

In addition, it was announced that the current 5p fuel duty cut will remain in place until the end of the year, rather than to September as previously planned. A 10p per mile increase in tax-free mileage rates was also announced, backdated to April 2026, taking the rate from 45p to 55p.

The 21 May statement also included wider cost-of-living measures, including food tariff reductions on a range of imported products. These are aimed primarily at consumers rather than domestic producers. While lower food prices may help households, they also raise a familiar concern for farmers: that food policy is often driven by retail price pressure rather than the long-term resilience of domestic food production.

 

5. Practical steps for your business

1. Review succession plans - The APR/BPR changes mean succession planning should be reviewed sooner rather than later. Wills, partnership agreements and ownership structures should be checked to ensure they still achieve the family’s objectives.
2. Understand the potential IHT exposure - Families should model the potential IHT position using realistic land, building and business valuations. It is better to understand the possible exposure now than to leave the next generation dealing with it unexpectedly.
3. Revisit business structure - The interaction between tax, control, succession and cash extraction is becoming more important. Partnerships, companies, land ownership and rental arrangements should all be reviewed together.
4. Stress-test cashflow - Lower inflation does not mean lower costs. Cashflows should be stress-tested for labour increases, machinery replacement, interest costs, rent, drawings, tax payments and capital investment.
5. Assess investment carefully - Capital investment may still be essential, particularly where it improves efficiency or compliance. However, borrowing costs and repayment capacity need to be considered carefully.