Budget highlights importance of farm succession and investment decisions, say AHDB analysts

The Agriculture and Horticulture Development Board (AHDB) has published its response to the Autumn Budget, highlighting how changes in inheritance tax, direct payments and the farming budget could affect the industry.

A significant number of family farms may be impacted by the Chancellor’s announcement, which limits 100% agricultural property relief and business property relief to the first £1 million of value from April 2026.

Any assets above that threshold will be taxed at 20%, meaning the average farm with a £2.2 million holding value would be required to pay £240,000 inheritance tax, repayable over a period of 10 years.

As farming businesses navigate these changes in inheritance tax, analysts at AHDB believe conversations around succession planning may become more important.

Sarah Baker, AHDB Head of Economics, said: “These changes may encourage farmers to think about succession earlier than they would otherwise. For example, there is a seven-year rule which applies in the case of land transfers. This means that any land gifted to an individual will be free of inheritance tax after seven years. Basically, the benefactor must live for seven years or more after gifting the land”.

Although the Chancellor announced that the farming budget would remain unchanged at £2.4 billion for the next financial year, analysis by AHDB shows that the real value of this money has been significantly reduced by inflation, with farm business costs rising on average by 44% since 2019.

Farmers are faced with growing uncertainty from economic, market and weather conditions, and may be reluctant to increase borrowings and investments in a range of options from environmental schemes to farm equipment.

With return-on-capital employed at 0.5% in 2022/23 (Defra) and the volatility in commodity markets starkly impacting farming bottom lines, the ability to service extra debt is restricted.

This may create the need to sell assets or reduce productivity on farms to support financial viability.

AHDB Economics and Analysis Director, David Eudall, says “The other consequence of the budget measures is that farm businesses will have to carefully consider operating and investment decisions, as these affect the value of the business and therefore have inheritance tax implications.

“This is of particular concern to us if there is a knock-on impact on agricultural productivity and therefore reduces our levy payer’s resilience to market shocks. We are also conscious there may be unintended consequences on self-sufficiency and food security.”