Tax Shifts and Reliefs: Preparing Your Farm Business

Labour insists it has honoured its promise not to increase income tax for working people, yet the Autumn Budget suggests a more complex reality. Chancellor Rachel Reeves announced modest tax increases that will affect households and businesses, including those in agriculture.

Unlike last year’s Budget, which placed heavy strain on farming, this time agriculture saw some welcome news. A positive change is the introduction of the £1 million allowance for Agricultural Property Relief (APR) and Business Property Relief (BPR) per person being transferable between spouses. Previously, families had to restructure Wills to use the relief on the first death. Now, it passes automatically, giving couples access to a combined £2 million APR/BPR allowance.

Key Announcements For Farming Businesses:

• Capital Gains Tax: From April 2026, Business Asset Disposal Relief rises from 14% to 18%, with the £1 million limit unchanged.
• Pension Funds: From April 2027, pension funds will be included in estates for Inheritance Tax.  
• Income Tax and Wages: Personal allowances frozen until 2031. From April 2026, the national living wage rises 4.1% to £12.71/hour, and the minimum wage rises 8.5% to £10.85/hour. With inflation and fixed thresholds, more earners will be pushed into higher tax brackets.
• Dividend Income: From April 2026, dividend tax rates rise by 2%; basic rate 10.75% and higher rate 35.75%.
• Capital Allowances: From January 2026, a new 40% first‑year relief applies to plant and machinery purchases above the £1m Annual Investment Allowance (AIA). From April 2026, the Writing‑Down Allowance falls from 18% to 14%.

A farm partnership investing £2m in new tractors in 2026 could deduct £1m under AIA, claim £400,000 relief on the next £1m, and place £600,000 into the main pool with WDA at 14% annually.

With rising taxes and shifting allowances, farming businesses should take a proactive approach and review business structures to ensure they remain as tax‑efficient as possible. In particular, farmers who rely on dividends for income should carefully reassess whether a salary or dividend payment strategy offers the best balance. Strategic planning now will help safeguard profitability and strengthen long‑term resilience.

To discuss, please contact Lucy Hollins on 07467 712113.