Spring Budget changes that will impact the land and rural sector

In a Budget billed as one to encourage more investment, more jobs, better public services, and investment for growth, there wasn’t much that hadn’t already been trailed in advance.

The headline of the 2% cut in employers’ National Insurance to 8%, and self-employed National Insurance to 6%, following the previous cuts announced in the Chancellor’s Autumn Statement, were certainly no surprise, and were saved until the end of the Budget address, which extended to over an hour.

In addition to the announcements of the continued freeze on fuel duty, and an increase in the VAT registration threshold to £90,000 from 1 April (the first rise in seven years), the main issues affecting the rural sector were in relation to property tax, most notably the abolition of the Furnished Holiday Let (FHL) regime, the end of Stamp Duty Land Tax (SDLT) Multiple Dwellings Relief (MDR), and a relaxation of the higher rate of capital gains tax (CGT) on residential property from 28% to 24%. The basic rate for residential property will remain at 18%.

Martyn Dobinson, Partner, and a member of the firm’s Land and Rural Practice Group, commented:

“The abolition of this relief, which has been of benefit to many in the rural sector, is certainly a blow. The relief applies to qualifying furnished properties that are available for short term holiday letting and gives owners access to CGT reliefs such as rollover and gift relief, as well as capital allowances on qualifying furniture, equipment and fixtures, and a full deduction against income for related financing costs.

“Profits from FHLs also count as earnings for pension saving purposes. The impact of this change for property owners who were relying on FHL properties and businesses being classed as trading for inheritance tax (IHT) planning purposes, remains to be seen. Draft legislation is promised in due course.

“The reduction in the higher rate of CGT on property from 28% to 24% is clearly a measure, coupled with the abolition of the FHL regime, to bring more residential property onto the market and encourage the sale of second homes. That’s fine when a second home is held as an investment, but when they form a vital part of a diversified working rural business already pressured by rising costs and uncertainty around future agricultural support, this may pose more of a problem.”

The FHL relief will be abolished from April 2025.

Government response to environmental land management and ecosystem service markets tax consultation

Also announced in the Budget were proposals for grants offering support in agricultural productivity and innovation of £427 million, and £75 million to be used for water and flood management and the protection of agricultural land.

Following its consultation on the taxation of environmental land management and ecosystem service markets, the government today announced its intention:

• To establish a joint HM Treasury and HMRC working group with industry representatives to identify solutions that provide clarity on the taxation of ecosystem service markets where existing law or guidance may not provide sufficient clarity,
• To extend the existing scope of agricultural property relief (APR) from 6 April 2025 to land managed under an environmental agreement with, or on behalf of, the UK government, devolved administrations, public bodies, local authorities, or approved responsible bodies, and
• Not to restrict APR to tenancies of at least 8 years.

Martyn added:

“It’s great for our land-owning clients to finally have some clarification on the tax treatment of land used in environmental schemes and the extension of APR in that regard is very welcome.

“We shall digest and study the detail, but it’s evident that further clarity is still required across a number of aspects.”

For any further queries, please contact Martyn Dobinson.

You can also read our analysis of the announcements from the Spring Budget on individuals and businesses.