The Budget last month sent shockwaves through the UK’s farming and family business communities with the revelation that from 6 April 2026, 100% IHT relief through Business (Property) Relief (“BR”) and Agricultural Property Relief (“APR”) will be capped at £1m of assets (combined agricultural and business property) and over that amount, will be charged at an IHT rate of 50%. Currently there is no limit to the amount of either relief.
In addition to this, businesses have been hit with an increase in Employer National Insurance Contributions (“NIC”) to 15% and a reduction in the threshold at which employers will pay these to £5,000 from April next year. The National Minimum Wage (“NMW”) will rise in April 2025 by 6.7%: an increase from £11.44 to £12.21 an hour.
Deafened by all the resulting noise in and out of the legal world, I decided to speak to three individuals directly affected by these changes to gauge the true impact. I have anonymised their experiences by not using their real names.
Jack
Jack farms a 2,000 acre estate in Scotland with a farm shop. He is married with three young children, one (or all) of whom will hopefully take on the estate and business one day.
Regarding the changes to BR and APR, Jack says the £1m tax free threshold and then 50% of the prevailing rate means that it’s the worst of both worlds: for the cash strapped asset rich farmer it represents a massive bill and for the investor looking to shelter cash from IHT it still represents good sense. Crudely put: £2m in cash would attract IHT @ 40% = £800k tax. Invest that £2m cash into farmland: £1m free then £1m @ 20% = £200k tax. So, the investor market will probably still exist, which is one of the reasons the farmland price is so high, which then means the cash strapped farmer’s probate value will remain high.
Jack thinks farmers must move on from being a protest group and the NFU should consult its members on what it is that is wanted, using a base point of the status quo being the thickest bed of roses one could imagine such as no business rates on buildings or land, VAT recoverable on property repairs (including the farmhouse), reduced duty red diesel, an annual subsidy cheque, and no commuting costs, to name a few.
Jack believes a solution could be to increase the £1m allowance to £5m, or £10m perhaps between spouses (this view has been shared by many in and out of the press as a way to be fairer to farmers and smaller business owners but still ensure the country’s largest landowners “pay their fair share”).
In addition to the attack on BR and APR, he believes the employers’ NIC rise and the increase in minimum wage is “bonkers”. His “small” business (110 employees with an annual turnover of nearly £10m) will see costs of employment increase by £250-300k. He told me his business categorically cannot absorb that and therefore the employee output is going to have to increase and they will not be recruiting at the same rate and therefore wonders what he could automate.
For those that live in a tied house, the Agricultural Wages Board (which has been abolished in England) only allows him to allocate £1/week to an employee when calculating their wage. Therefore, for someone on 2,200 hrs of minimum wage, plus 800 hours of o/time @ 1.5, their new wage is going to be £41,500. And he then has to “give” them the house rent free – worth another £20k. Jack feels it simply no longer stacks up. He therefore expects that he will need to enter into new employee contracts which will need to be negotiated for those employees and further expects that they are going to have to suffer a net wage cut when their house is factored in. He also anticipates needing to charge a market rent because if his employees were to rent a house from him then they would then be able to resign and go and work elsewhere – and he could not let that happen on a reduced rent as he does not think that there is a lever in the Private Residential Tenancy (“PRT”) legislation to allow him to increase the agreed rent by more than a few % per year. He thinks that the new tenancy legislation (no fault evictions, etc) coming down the range is a close resemblance of the PRT system which they are now on in Scotland. Jack says those workers are going to suffer an overall wage cut and probably have to move house and sadly, most have not appreciated this prospect yet.
Dave
Dave is a fifth generation family member in the hospitality sector and investor in of one of the South West’s largest employers with an annual turnover of over £200m and responsible for almost 2,000 jobs. The business was started in the 1850s and has been growing and investing in its employees, property, distribution network and equipment since then. Dave said he adds the point about the South West as it is one of the most economically deprived areas in Northern Europe and the family is only too aware that they are responsible for the livelihoods of many people. Dave says that what this budget threatens is the very stability of these jobs in the longer term.
Dave acknowledges that there will be those directly employed by the business who are better qualified to comment on the immediate financial effects on the business of the increase in NMW, increased employee rights, NIC and reduction in business rates relief etc. However, Dave thinks the nature of the business has probably become obvious when the whole House cheers the “penny off a pint” believing it drives home how out of touch with reality the politicians are.
As an investor in his family’s business, the changes to BR are a real concern to Dave. As is the norm in the UK, families that own businesses have continued to invest year on year. Whilst they expect a return, there is an appreciation that there will not be double digit returns on a mandated five year business plan as would be expected with, say, a Private Equity play.
Dave is keen to stress this is a long-term investment which sees the business evolving and improving over time. The shareholders’ capital is tied up in the business. On a death, when shares get passed down to the next generation and kept within the family group with no tax liability (as BR allows until April 2026), this allows the business to continue on a stable footing.
Dave thinks that with the removal of 100% BR, what the Government is implementing is the scope for “dry tax charges” where there would potentially be a tax liability without the related cash gain to deal with the liability incurred. In effect, this means that the beneficiary/recipient will probably require the company to buy (an element of) the shares back to fund the tax liability.
He says the funds that the company deploys to buy back shares from family members could have been used to invest and grow the business. This in turn would have likely increased the money that was then getting paid to the Government through increased profits (corporation tax) as well as potentially employing more people.
At the very least, Dave believes the £1m allowance should be raised significantly. In business and commercial terms, £1m is not considered a large sum and Dave does not think that people (like him) contest that tax is something that needs to be paid, however there seems little advantage in “killing the goose” and actively impacting on the ability of a company to invest for the future in both its offering and employees. This comes at an already difficult time where discretionary spend is under pressure, tourism numbers are down and with the last peak trading season (Summer) having been severely impacted by inclement weather.
Pete
Pete’s parents started their family garden centre business in the 1980s and he has taken over: he explains it has four families that are shareholders, six garden centres and historically the business is a “low margin low profit but nonetheless consistently in profit at year end!” sort of business. The business has 165 core employees which increases to around 200 at Christmas peak and Spring trade.
Pete kindly agreed to share some numbers with me using October wages as a baseline, looking at NI and NMW (low month and core team) and also considered the business rates increase this year.
Over the next tax year, Pete understands business rates will cost them an additional £15k. The NIC impact on his core team will cost them another £42k. The impact of the increase in the NMW will be £122k more. The wage bill increase total will therefore be around £164k more (this was a total £3.6m last year so 4.5% more). This excludes additional 35 minimum seasonal workers that Pete recruits in Spring for four months and November and December. This also excludes giving any pay rise at all to his existing team or new recruitment. They are aiming for inflation linked at the minimum.
Pete says that off the back of the NMW increase year on year, there has been consistent pressure on pay increases for middle manager roles that are so vital to the company.
Looking at CapEx, Pete illustrates that they have one planning application accepted with an investment of £650k and a second application launched of £275k which they will likely cancel.
Pete says that turnover last year was £11.9m with profits of £328k. He explains that profit or loss next year will have to plan around core team numbers dropping. They will look at reducing hours and or opening times, seasonal recruits and timings (the lower NI threshold means they will get temporary staff in for short bursts to avoid the 15% NI), minimal/no pay increase for the rest of the team, selling unprofitable site(s), redundancies, cancelling investment into assets and any acquisition plans, no new permanent recruitments and not creating any new roles.
Whatever one’s political alignment, there is no doubt that farmers and business owners will have some very tough decisions ahead, and many “working men” will no longer qualify as just that.
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