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Autumn Budget: Key Implications for Agricultural Businesses

The 2025 Budget was outlined by the Labour Chancellor, Rachel Reeves, on 26 November.听This year鈥檚 Budget focuses on raising听additional听revenue and restoring fiscal sustainability 鈥� effectively听attempting听to 鈥渂alance the books鈥� through increased taxation rather than major spending cuts.听

Although the manifesto commitment not to raise Income Tax, National Insurance or VAT has technically been听maintained, the overall package shifts more pressure onto businesses, including agricultural employers. Most individuals and businesses are expected to pay more tax over the forecast period. Further clarity will follow in the Scottish Budget on 13 January, particularly on Income Tax and property-related measures.听

Underlying this strategy is the central challenge highlighted by the听Office for Budget Responsibility听(OBR):听weaker projected productivity. The OBR has downgraded its medium-term productivity forecast, which on its own reduces projected tax receipts by around 拢16bn in 2029-30.听听

GDP growth in the forecast period averages about 1.5% a year, while inflation is expected to run at听a higher level, only returning听to听the听2%听target听in 2027.听The听government is still forecast to meet its fiscal rules 鈥� but only because this听budget delivers substantial increases in tax revenue, with tax changes totalling about 拢26bn per year by 2029-30.听

Notably, no substantial growth plan听accompanied听the听budget. The OBR confirmed that none of the 85 policy measures announced materially affect the UK鈥檚 medium-term growth path.听

Summary of key changes that affect agricultural businesses

Economic听Backdrop

• OBR now assumes lower productivity and only modest medium-term growth (down from 1.3% to 1%), despite higher public investment.听听
• Inflation is forecast to stay higher for longer 鈥撎�3.5% in 2025, 2.5% in 2026, returning to the 2% target in 2027.听
• Interest rates are expected to fall听modestly to around 3.6%听in 2026听before returning towards 4% by 2030.听
• The government is still meeting its fiscal rules,听but only due to tax rises, not improved growth.听

Inheritance Tax and Succession

No change to the key headlines from last year:

• Cap imposed on relief available under Agricultural Property Relief (APR) and Business Property Relief (BPR). First 拢1m of combined business and agricultural assets remain exempt.
• For assets over 拢1m 鈥� Inheritance Tax (IHT) will be applied at 50% of the full rate (i.e. 20% effective rate).听

New changes announced:

• The听拢1m听APR/BPR听allowance will be transferable between spouses/civil partners.听
  • • Any unused allowance on first death can be used on the second 鈥� including where the first death occurred before 6 April 2026.听
• The听IHT nil-rate band (拢325k) and residence nil-rate band (up to 拢175k) have both been frozen until April 2031, one year longer than previously planned.听

The APR/BPR reforms will fundamentally change the inheritance position for farming families 鈥� now is the right time to review your position.听The new transferability gives spouses more听flexibility, but听does not remove the need to听restructure ownership intelligently.听You should review wills, partnership听agreements听and asset valuations now, not after the reforms take effect.听

Personal Taxes and Wealth

• Income Tax and National Insurance thresholds freeze to be extended until April 2031.听
  • Income Tax thresholds do not directly apply to Scotland as Income Tax is a devolved matter, but the freeze to the personal allowance and NIC thresholds will apply.听
  • While a small announcement, this is one of the largest impact items in the budget 鈥� raising an extra 拢8.3bn a year.听
• 2% tax rate increase on dividends and savings income.听
• Cash ISA limit reduced to 拢12,000 from 6 April 2027 (within an unchanged overall 拢20,000 ISA allowance)听to encourage investment in stocks and shares.听
  • Over-65s exempt听鈥撎齬etain听the full 拢20,000 cash ISA allowance听
• Removal of the听2-child听benefit cap in听Universal听Credit and Child Tax Credit from 2027听
• From 6 April 2029, salary-sacrificed pension contributions above 拢2,000 per year per employee will be subject to both employer and employee听National Insurance Contributions听(NICs).听

Partners, company directors and landlords will pay more tax on drawings and investment income, reducing disposable cash available for family or business reinvestment.听

Farms听operating听through companies may need to reassess听remuneration听strategies 鈥� dividends, salaries, bonuses, and pension contributions all interact differently under new rules.听If you听operate听a company, the pension salary-sacrifice cap means you should adjust longer-term pension planning now to avoid unexpected NIC costs from 2029.听

Capital Allowances and听Investment

Most farm machinery investment will continue to fall within existing听reliefs:Annual听Investment Allowance (AIA)听鈥撎�100% relief on up to 拢1m of qualifying plant and machinery for all business types.听

• Full expensing听鈥撎齬emains听available to companies for qualifying new main-rate plant and machinery.听

However, two听important changes听affect expenditure outside AIA/full expensing:听

1. Main rate Writing Down Allowance听reduced from 18% to 14% (from April 2026),听slowing the rate at which tax relief is given.听This means businesses will claim a smaller annual deduction on the tax value of qualifying plant and machinery.听
2. New 40% First-Year Allowance听(FYA)听(from 1 January 2026)听

• • For investment in听new main-rate assets that听don鈥檛听qualify for full expensing听or not covered by AIA.听

• • Remaining value written down at 14% thereafter.听

Farms planning major capital investment (new machinery, buildings, equipment) should review timing carefully, as bringing forward certain purchases into 2026 could secure the higher 40% year-one relief where it applies.听

Employment听Costs

Increase in National Minimum Wage and National Living Wage:听

When compared to 2024 rates (拢11.44 and 拢8.60 respectively)听this听represents听an 11.1% increase for 21 and over workers and a 26.2% increase for 18鈥�20-year-old听workers.听This will make a significant difference for industries with听high levels听of employees that are听paid听close to the National Living Wage such as听dairy, pigs,听poultry听or fruit/veg businesses.听Labour-intensive sectors should budget now for the increases in staff costs.听

Other notable points

• From April 2027, the government intends to raise fuel duty (currently 52.95p per litre) in line with inflation, along with gradually unwinding the temporary 5p cut by March 2027.听
• A new Electric Vehicle Excise Duty (eVED) regime from April 2028 will introduce 鈥減ay-per-mile鈥� taxation for electric and plug-in hybrid cars.听
• From April 2027, HMRC will roll out 鈥渄igital prompts鈥� in VAT filing software, nudging businesses about anomalies at the point of filing.听
• From April 2029, all VAT invoices will have to be issued in a specified electronic format 鈥� effectively mandatory e-invoicing for VAT-registered businesses. An implementation roadmap will be developed with stakeholders and published at Budget 2026.听

If听you鈥檇听like to discuss what these changes mean for your farm or croft, speak to your local SAC Consulting adviser for听guidance.听

Andrew Coalter, Senior Agricultural Consultant and Area Manager, Andrew.Coalter@sac.co.uk

Posted by SAC Consulting on 11/12/2025