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After many months of speculation, the Chancellor outlined her budget on 26th November. It has not gone without notice by many commentators, including the Office for Budget Responsibility, that it would appear to be a budget of ‘spend now and tax later’ with many of the changes coming in around or after the next general election.

Whilst there had been rumours of many changes to capital taxation, resulting in a flurry of property transfers being completed up to midnight on 25th November, the changes announced were relatively modest.

As outlined previously by the Farming Minister, there were no significant changes to the Inheritance Tax Reforms which will affect many of our clients from April 2026. There was one small, but crucial, change whereby the £1,000,000 tax-free amount for estates which qualify for Agricultural Property Relief (APR) and Business Property Relief (BPR) will be transferrable between spouses. We understand from the papers that this will also be applicable to where one of the parties has died prior to the changes and no APR/BPR claim was made. This will simplify some tax planning, especially on smaller farms, as it will remove the requirement to make sure some land is transferred on the first death. However, it does not remove the much more challenging issues in respect of farms and estates with values in excess of £2,650,000 which will now become taxed. It is important to note that the industry seemingly continues to focus solely on houses, buildings and land, forgetting that all the other assets owned by the elderly generation will now be subject to Inheritance Tax.

With a year of planning meetings now under our belt, it is becoming clear that there are a number of solutions that can help mitigate Inheritance Tax, but is it very much a bespoke solution for each of our clients, requiring careful thought in respect of the assets owned, family situation, and long-term plans.

Within the Budget papers, there was a proposal to introduce the high-value council tax surcharge, the so-called ‘Mansion Tax’, in 2028. This is where properties worth over £2,000,000 will pay a sliding scale additional charge of between £2,500 and £7,500 per annum. All properties above Band F will be considered for this potential tax. With many farmhouses being caught in these bands (often because the District Valuers back in the 1990s could not find the houses), careful thought will need to be given to this. A consultation is due to be launched shortly in terms of what reliefs may be applicable to this. There is reference to people who have to live in a high-value property, because of their job, possibly qualifying for some sort of exemption. We do not know if this will be brought in and whether it will be applicable to just, say, a farm manager rather than the owner of the farm. With this being one of the more popular proposed changes, it is our expectation that the rates will increase over the years, whilst the threshold for the value of the properties being caught will likely be frozen. This will result in more properties being caught by this tax over time.

The additional income tax 2% surcharge on income from property lettings introduces three new tax rates. We understand that all allowances are to be set first against other income before applying to this rate. This will affect all our clients who let not just residential property but also commercial property and farmland.

With much of the press focusing on the changes to income tax rates, pension changes, and ISO rules, the upcoming changes to Inheritance Tax appear more certain despite the various rumours. It is important therefore that clients consider how they are preparing for succession as soon as possible, especially as some options will only be available until April 2026. Valuation will be key to all this, but the ability to understand the farm, the dynamics of the family relationship, and likely costs of any changes result in it being evermore important to rely on good advice.

For more information, please contact myself or Polly.