The rural sector continues to face a range of evolving challenges. From shifting agricultural policies post-Brexit and the increasing impact of environmental regulations, to the increased cost of energy and inputs, these changes are reshaping the landscape for farmers and estate owners. In addition, new opportunities continue to emerge around the need for housing, sustainability initiatives, BNG and carbon, offering ways to diversify and future-proof rural enterprises. Understanding how these factors influence tax planning, profitability, and compliance will be critical in navigating the road ahead.
With the new Labour government now in office, there may also be significant changes on the horizon. Rural businesses should be prepared for potential changes in agricultural funding, land use policies, and environmental initiatives. Taxation reforms and fiscal policies could have major implications for estate owners and farmers alike. As we look ahead to the budget, it is vital to remain aware of potential new tax measures that could impact businesses. We will be closely monitoring these developments to help you understand how to manage your finances effectively in light of upcoming fiscal policies.
In this issue our team of experts provide practical advice on key areas such as how to finance the purchase of machinery, planning for the budget, the use of collaboration agreements when farming with others and tips and advice on succession planning, helping you stay ahead of changes that could impact your business.
As we approach autumn we look forward to running our autumn seminars where our focus will be on succession planning, post budget tax planning and collaboratively farming with others. Don’t miss our invitation in this newsletter and book your place early – we look forward to seeing you at one of the venues.
SAM KIRKHAM Partner and Head of Farms & Estates Team
WHAT COULD RACHEL REEVES DO TO RAISE TAX…
And what should you be doing in advance of the Budget?
In her first speech as Chancellor of the Exchequer, Rachel Reeves revealed a £22 billion ‘black hole’ in the public finances. Last month the Prime Minister, Keir Starmer, referenced the forthcoming Budget in his speech on ‘Fixing the Foundations of our Country’ and confirmed ‘…it’s going to be painful…..those with the broadest shoulders should bear the heavier burden….’.
So, from what taxes could the black hole be filled?
Given Labour’s pre-election manifesto promises, it will be a challenge. They promised not to raise the basic, higher or additional rates of income tax, national insurance, corporate tax or VAT rates. These taxes contribute around two thirds of total UK tax receipts. This leaves finding £22bn from taxes which together contribute approximately £150bn.
INCOME TAX AND NATIONAL INSURANCE
Despite Labour’s pre-election tax promises, given dividends on shares are often viewed as income of the wealthy, and are used as an alternative way to extract remuneration from an owner managed company tax efficiently, we could see an increase in the dividend tax rate. The basic rate of tax on dividends is 8.75% which is significantly lower than the main basic rate of 20%.
If you are an owner of a limited company and normally receive dividends, if the dividends have not yet been paid for the current tax year, you may wish to consider bringing them forward to before Budget Day.
Income tax receipts can also be increased through the continued freezing of tax thresholds. In 2024/25 there is estimated to be 4.4 million more taxpayers compared to 2021/22 when the thresholds were frozen. This includes a 26% increase in taxpayers over state pension age. There is also estimated to be a 117.1% increase in additional rate taxpayers paying 45% tax.
CAPITAL GAINS TAX (CGT)
The current CGT rate system is complicated with rates of 10%, 18%, 20% and 24% depending on what is being sold and the level of other income received in the tax year of disposal. It does need simplifying. The low CGT rates also encourage the avoidance of higher income tax rates through schemes which change income to capital gains.
However, history has shown us that raising CGT rates, to say 40%, could cause a significant fall in tax raised as investors choose to retain assets rather than sell and pay higher tax.
Given CGT represents 1.5% of total tax receipts there is unlikely to be a huge contribution to the black hole by raising CGT rates. Further, any significant increase in the tax rate should realistically be accompanied with some form of allowance for inflationary gains, to ensure taxpayer behaviour does not result in less asset sales which would not be good for the economy.
Given the argument for simplicity we could see a single flat rate of CGT, which is likely to be at least the highest current rate of 24%, and perhaps an increase to that rate. Further, a scrapping of the very low 10% rate seems sensible, by removing business asset disposal relief. This relief currently allows individuals to pay CGT at 10% on gains of up to £1M during lifetime on certain business assets.
Whilst it is usual for budgetary changes to tax rates to be applied from the start of the next tax year, if you are considering a disposal of assets and can bring forward the taxation date to before Budget Day, this should be considered with appropriate legal and tax advice.
INHERITANCE TAX (IHT)
There has been much in the press about the possible removal of business property relief (BPR) and agricultural property relief (APR).
Whilst there is some need for reform of IHT legislation the purpose of these reliefs should not be forgotten. APR and BPR enable taxpaying businesses to continue to contribute to the economy, employ people and invest in the local and wider economy. Without the reliefs businesses and farms, and assets used within them, would need to be sold to settle IHT liabilities.
Whilst protecting the above reliefs, Reeves could raise tax by removing the CGT uplift on death. This seems fair – with the purpose of APR and BPR being to protect the future continuation of businesses and farms, why should there also be no CGT payable if IHT relievable assets are sold by beneficiaries shortly after the previous owner’s death?
These IHT reliefs are often used to avoid paying IHT. To counter this we could see a lengthening of the ownership test from two years to up to say ten years, to ensure genuine business investments qualify. We could also see a cap on the value qualifying for relief.
The removal of BPR on AIM shares has been suggested, however, this needs to be considered alongside the benefit of the capital this provides to new entrepreneurial businesses which contribute to the growth in the economy.
Over the last few years there has been much debate over the ‘wholly or mainly’ test and whether this should be
changed to the CGT test of ‘substantially’, which would require more than 80% of the business to be trading for BPR to apply. This would have huge implications for many diversified farming and estate businesses and would require careful planning of the business structure going forward.
Any changes to IHT are also likely to impact Trusts. Therefore, if consideration is being given to banking existing IHT relief using Trusts, one should also consider the impact on Trusts of future changes.
If you own relievable assets, or are a Trustee of a Trust with relievable assets, consider the succession plan and whether there is the ability to pass on assets now to bank existing reliefs. Careful planning would be required to ensure this fits with the overall succession plan and the existing owner retains sufficient assets and income for their future needs.
It would be hugely damaging if radical changes, such as the removal of APR or BPR or capping those reliefs, were introduced in the Budget without first completing a full consultation process to consider the impact on businesses and the economy.
PENSIONS
There has been much debate in the press regarding limiting relief and raising tax on pension investments.
To promote saving for retirement, pension contributions benefit from tax relief at the savers rate of income tax, with basic rate taxpayers receiving 20% relief and higher rate taxpayers at 40% or 45%.
This costs the government £45bn each year, so it is possible we may see the introduction of a flat rate of between 20% - 30% for everyone, which would result in a significant Treasury saving.
However, any such move would contradict initiatives from previous governments, where there has been a drive to encourage individuals to save more funds for their retirement. Making pensions less generous for higher earners risks individuals saving less for their retirement.
There are some positive steps you can take before the Budget on October 30. If you are planning to make additional contributions to your pension this year – and you are a higher rate taxpayer – you should consider doing so prior to the Budget taking place. Additionally, you can utilise any unused allowances from the previous three tax years.
There has also been speculation the lifetime allowance could be reduced. In addition to this, some commentators
have highlighted the possibility the tax free 25% lump sum could be reduced, or possibly capped at a maximum of £100,000.
Further IHT could be introduced on pension funds left on death. Any funds that remain in a pension at death (at any age) are not subject to inheritance tax. As such, there is a substantial incentive, for those who can, to use nonpension assets to fund their retirement while preserving their pensions for bequests. This may be a target for the government and has been widely criticised by left leaning think tanks.
ISAS
Income from interest and dividends on cash and shares in ISAs is exempt from income tax and capital gains tax. Capping the amount invested in an ISA on which exempt income can be received could raise tax towards the black hole.
Tax relief on ISAs is anticipated to cost the Treasury nearly £7bn in 2023/24. Just 20% of ISAs hold more than £50,000 in savings. However, it is the high volume of smaller saving pots which accounts for the majority of the ISA relief.
In theory the government could save up to £5bn by capping relief on the first £50,000 held within an ISA. However, this is likely to be viewed as unfair by savers who have taken advantage of a scheme widely promoted by previous governments. Changing the rules now would be an unpopular move.
Since the publication of this article, the government has announced that as of 1 January 2025 all education services and vocational training supplied by a private school, or a “connected person”, for a fee, will be subject to VAT at the standard rate of 20%. Boarding services closely related to such a supply will also be subject to VAT at 20%.
WEALTH TAX
A wealth tax has been put forward many times from various lobbying groups. However, a wealth tax would be complicated to implement and expensive to administer. Therefore, I doubt this is something we will see in this Budget.
Instead, it is likely we will see some changes to Council Tax. We should expect an increase or removal of the cap, or more bands to bring larger properties into higher rates.
If any of the potential changes are likely to impact you, please get in touch.
SAM KIRKHAM Farms & Estates Team sam.kirkham@albertgoodman.co.uk
Succession Planning
With increasing levels of farm diversification, the potential threat to inheritance tax (IHT) reliefs and rising land values, many farmers are becoming more concerned with their succession planning and the options available.
The new government has announced their first Budget for 30 October 2024 and whilst their manifesto stated that rates of income tax, corporation tax and VAT would not be increased, they remained silent on both capital gains tax (CGT) and IHT.
The office of tax simplification has also previously suggested that both business property relief (BPR) and agricultural property relief (APR) are too generous, as is the ability for property values to be rebased to market value at the date of death for CGT purposes.
As a result, farming businesses that have previously been able to pass assets to the next generation tax efficiently could soon face significant IHT liabilities. Historically, nonfarming assets, such as holiday cottages and investment properties, have often been left to the non-farming children, leaving the farm intact for the next generation.
The favourable CGT reliefs for FHLs have proved to be a useful planning tool in the past but these will only be available up to 5 April 2025 – see separate article.
Many have also relied on the Balfour test to pass non farming assets to the next generation within the main business – as a reminder, provided the business is 50% trading overall, the ‘whole’ business should qualify for BPR and therefore can currently be passed on to the next generation IHT free.
Without looking at other options, chargeable assets could therefore remain within the estate at death, increasing the potential charge to IHT at a rate of 40%. For example, on a cottage with a value of £250,000, without any planning this could result in IHT of £100,000.
The use of a trust to remove value from an estate without
incurring a CGT liability at present still exists as does making lifetime gifts of assets that do not have an underlying capital gain – cash or assets that have not increased in value substantially – is likely to become more popular. Bringing the next generation into the business as partners earlier than previously anticipated could also help.
Consideration will also need to be given to non-trading assets, such as investment properties that are included within the business. As noted above, many farms and estates are currently relying on Balfour. However, there has been suggestion that the rules could be tightened to increase the point at which the whole business qualifies for relief from 50% overall trading to 80%. A significant number of farming businesses and estates could find themselves not qualifying under these tighter rules and facing a large IHT liability.
As a reminder, if the whole business fails the test, it is not just the non-business assets that become chargeable, the trading part could become liable too. Some businesses may therefore need to consider restructuring so that the investment assets are removed from the main businessaccepting that IHT will be due on these - but protecting the remainder from losing relief.
In summary, there are a number of threats to the current IHT reliefs which could mean many farms and estates will face significantly larger IHT liabilities than in the past. Succession planning is therefore even more crucial than before to enable assets to be passed to the next generation as tax efficiently as possible.
LIZ JONES Farms & Estates Team liz.jones@albertgoodman.co.uk
Partnership succession
Partnership succession is a crucial issue in the life cycle of a partnership business, ensuring continuity when a partner leaves, retires, or passes away. Effective succession planning is essential to avoid disputes, ensure smooth transitions, and protect the interests of all parties involved.
Succession should be a positive time for the family. It gives the opportunity to build in strength, empowering those that want to be involved to bring their skills, knowledge, commitment, and enthusiasm to the business.
Decisions to join or retire from a partnership need to be taken with a full understanding of what it means including the tax position of income and assets, ownership of assets, inheritance, VAT status, personal liability, decision making… I could go on.
KEY LESSONS SHOULD BE:
KATE BELL Farms & Estates Team kate.bell@albertgoodman.co.uk
We continue to see various new cases, including the farming family partnership dispute Proctor vs Proctor. This case involved a sister who retired from the family farming partnership but then claimed a one-quarter share of the partnership assets. The court concluded that the retiring partner retained their proprietary interest in the partnership assets, including tenancies, as there was no clear agreement stating otherwise.
There was ambiguity regarding the process for determining the value of the business that each successor would inherit, and no financial settlement agreed. As a result, family members had different expectations and understandings of their entitlements, leading to a legal battle.
1. Clear Partnership Agreements: The Proctor case demonstrates the importance of having a clear and comprehensive partnership agreement. This document should explicitly detail the procedures for succession, including how the value of the business will be determined.
2. Review Succession Plans: Family dynamics and business conditions can change over time, making it essential to regularly update succession plans. In the Proctor case, the outdated partnership agreement contributed to the conflict.
3. Open Communication: Unfortunately, lack of transparent communication among partners and family members is a key part of most succession disputes. Regular meetings to discuss succession planning can help align expectations and prevent future conflicts.
4. Professional Guidance: Seeking legal and financial advice when drafting and updating succession plans and partnership agreements can help prevent costly legal battles. We do not draft any legal documents but work regularly with solicitors to do this.
This is just one case of many that serves as a reminder about the importance of good succession planning. By ensuring that partnership agreements are clear, regularly updated, and supported by open communication, businesses can navigate succession smoothly and avoid the pitfalls.
Proper planning not only secures the future of the business but also preserves family relationships and the legacy of the founders.
MACHINERY PURCHASING VS HIRING
Inflation and advances in technology has meant new farm machinery purchases are more expensive than ever. In the financial year ended 5 April 2023, strong performance in some agricultural sectors resulted in farmers having more cash to spend on machinery. This, combined with increased trade in values, meant demand for new machinery remained strong.
Times have changed in 2024, with reports of 13% fewer tractor registrations in the first 6 months of 2024 compared to a year earlier. This has led to farmers repairing older machinery and running them for longer, instead of opting for capital outlay on new machinery.
When the time does come for considering new machinery, there are many different options on how machinery can be sourced and financed. This could be through:
Hire Purchase (HP) agreements
Extending the business’ overdraft and purchasing the asset out right
Hiring or leasing; or
Using contractors.
This decision will be influenced by a combination of management views, availability of funds and let’s not forget, the tax implications.
PURCHASING
A benefit of purchasing machinery – either outright or through finance, is that it is at your disposal. This can be vital when navigating the unpredictable UK climate. However, it is difficult to factor the weather into any cost benefit analysis when looking at the various options to obtain new machinery.
Other costs to be considered when purchasing machinery are ongoing repairs, labour, insurance, and depreciation.
When purchasing machinery, it should pay for itself over its replacement period - a good benchmark here would be to aim for a 5 year pay back policy. If the machinery
depreciated £100K in 5 years this would cost £17 per hour based on 6,000 working hours in depreciation alone.
The business will need to afford monthly capital repayments or factor the full cost into the cashflow of the business. Interest charges should also be considered when looking at the total costs, as 0% finance agreements are becoming harder to find.
Full tax relief is available in year one on the purchase price if the annual investment allowance (currently £1M) is not exceeded. However, it is worth remembering when the machinery is sold, tax is payable on the proceeds received. Tax relief is also obtained on the interest paid over the term of any borrowing.
Just to caveat, if acquiring machinery on finance, it needs to have been brought into use before full allowances can be claimed. Something that catches some farmers out, particularly when acquiring combine harvesters post-harvest.
HIRING/LEASING
If machinery is unlikely to pay for itself within the replacement policy timeframe, hiring could be considered. This can be a good option for larger equipment used less frequently in the business or for sourcing an additional machine at key times of year, e.g. harvest.
Here, you do not have to consider depreciation or repair costs. However, skilled labour needs to be available so you can run the machinery effectively in house. This option also allows use of larger and/or more advanced machinery which may not be affordable within the normal course of business, to help improve efficiencies and reduce time spent on a job.
For tax purposes, hire costs are offset in full against any trading profits.
CONTRACTORS
Use of contractors is another option to explore. This removes the need for in house labour and can reduce staff numbers
which the business may use less efficiently throughout the quieter months. Breakdowns are also less of a concern as the machinery should be of higher standard and backups will hopefully be available.
Contractors do come at a cost, which is why it is essential to work out the machines which are cost efficient to the business to purchase and ones which are less so.
SHARED MACHINERY OWNERSHIP
Shared ownership can be considered if your business cannot justify purchasing machinery independently. This could help mitigate the risks that come with a contractor not arriving on time and having an adverse effect on crop quality.
This has the same tax relief benefits as purchasing the machinery alone, if invoicing is done in the correct manner
– see James Bryant’s article for more details.
As you can see, there are many factors to consider when weighing up the pros and cons to each of the above options, some more obvious than others. All of which will need to be considered on a case-by-case basis.
Talking to us before making the decision, will therefore ensure that these options can be explored in order for you to make the right decision for your business.
Renewables impact for tax
There are still a lot of renewable developments happening on farms.
In this article I focus on the tax implications of contracts where a farming business leases out land to a third party for large scale energy generation.
Over the last few years contracts with third party energy providers have become longer in length. For example, contracts leasing out land for solar were originally for about 25 years, sometimes with options to extend the time period. Now it is common for these contracts to be for 40 years and longer. Therefore, it is imperative to think long term about the impact of leasing out land for renewables.
INCOME TAX
Income from the lease will generally follow ownership of the land. If the land is owned personally, then the income will be subject to income tax. Once you earn more than £50,270 then you will be paying higher rates of tax (40% or more) and, if applicable, may also lose any child benefit if you qualify for it.
It may make sense to spread the land ownership out amongst other family members to reduce the amount of income taxed at higher rates.
One other method of keeping income tax down is to use a limited company. If the land is owned by a limited company, then the tax payable on the income ranges from 19% to 25%, and this can save you money. You do have to consider how to get the money back out of the company, however this can be an effective way of managing the income from a renewables project.
INHERITANCE TAX (IHT)
IHT is potentially payable by an individual after their death. Farmland is generally IHT free as it often gets one of two reliefs: agricultural property relief and business property relief. If farmland is leased out for, say a solar farm, then these reliefs no longer apply and so it can be chargeable to IHT. This is the case even if you are contracted to keep the land around the solar park tidy.
The land may also have increased in value so there is a double impact. For example, one acre of land which you farm worth £8,000 per acre would be IHT free. However, if
the same acre is leased out for solar, it might now be worth £25,000 and the potential IHT is £10,000 per acre.
If the income from the solar is £1,200 per acre, then after tax it can take up to 14 years of income from the land to pay off the inheritance tax liability.
So, what should you do if a renewables development comes knocking at your door?
Firstly, do embrace the opportunity. For most farmers the ability to lease out land for £1,000 per acre plus is welcome. There are occasions when the income comes at too much of a cost for the rest of the farming business so bear that in mind.
Secondly, start thinking really long term. Who should share in the capital value of the land and the income from this for the next 40 plus years?
Finally, think about the tax implications. Farmland can currently be gifted to others tax free. Land leased out for solar is much more difficult to gift tax free. Therefore, making decisions about income and land ownership before the lease is in place is crucial.
There can be a reluctance by farmers to collaborate or share machinery, citing a lack of control and ownership as reasons for wanting to do things themselves and with their own assets. In other parts of the world such as New Zealand, more farming businesses share machinery, labour and land.
Share farming and contract farming agreements, alongside joint ventures, have allowed new entrants to get their feet on the farming ladder whilst the experienced farming community remain involved.
There are different business structures that can be adopted to help the business survive and hopefully thrive.
Share farming
Share farming is where two or more farmers decide that farming together would be advantageous. The farmers can decide who brings what to the table in terms of assets, skills, money, and day to day management of the business.
There needs to a mutual desire for the farming businesses to succeed otherwise the agreement will not last long.
All businesses involved have their own income tax and VAT registrations, so that they are seen by HMRC as independent and need to ensure they submit the relevant returns, whilst ensuring there is no duplication of costs or VAT reclaims!
There should be an annual profit and loss account drawn up from the respective businesses and then this is shared to the relevant farmers in the agreed ratios.
The farmers then report their share of income and expenses alongside any other farming trades outside of the share farming.
There is no partnership from a legal point of view and there should always be a share farming agreement put in place so that everyone knows how the business will operate and how everything will work, especially when the agreement comes to an end or if one party wants to exit.
The right agreement, record keeping and reporting will ensure that everyone can maintain their current farming status which is very important when looking at individual tax positions, particularly when looking at inheritance tax planning.
Contract farming
In contrast, contract farming is where there is a farmer and a contractor. The farmer normally provides the land and buildings, whilst the contractor provides machinery, labour and, if applicable, livestock.
The farmer in this case has less day to day involvement with the activities on the ground but is still managing the business.
The contractor would have a set fee for completing the work undertaken like any other farm contractor and they can use third party contractors for anything that needs specialised equipment or skills to complete, as and when necessary.
Again, all parties would usually be VAT registered and must report their own taxes to HMRC.
There is normally a bonus for the contractor once the annual figures are completed to give them an incentive to be efficient and ensure the farm is being farmed effectively and profitably. The risk however is taken by the farmer, thereby ensuring the business continues to be treated as trading.
In this type of structure, the contractor does not usually own land and buildings that would qualify for agricultural property relief but instead would look at business property relief. There could be an option for the contractor to acquire land and buildings during the agreement as a further incentive.
As you can see, there are various farming structures available to you, depending on your circumstances, to ensure your business can continue. There are also lots of people wanting the opportunity to farm.
So don’t leave it too late and discuss your options with us or your farm consultant, as your success is our success.
Furnished Holiday Let Changes
With draft legislation now released, we thought it would be good to provide an update to our earlier article in the Spring newsletter, to outline the proposed transitional changes to the furnished holiday let (FHL) regime and outline some planning opportunities ahead of and after 6 April 2025.
To recap, qualifying FHLs have attracted a number of tax reliefs which do not apply to general property letting. The following reliefs are affected by these measures:
Relief for finance costs
Capital allowances
The calculation of relevant earnings for pension purposes
CGT reliefs
Rollover relief (replacement of business assets)
Business asset disposal relief (BADR) (10% tax relief)
Holdover relief (gifts of business assets)
Capital Allowances
The new rules remove the ability to claim capital allowances on expenditure such as electrical works,
new furniture, white goods and equipment.
The existing replacement rules for rental businesses will mean this change will not be significant for ongoing FHL properties as relief will be available where items are being replaced. The impact will be felt for new FHL businesses where there will no longer be relief for initial setup costs.
The good news, however, is that any balance in a capital allowance pool carried forward from April 2025 will automatically be transferred to the ongoing property letting business.
Planning points – consider investing in capital expenditure pre 5 April to take advantage of these more beneficial rates being available.
Pensions
FHL income will cease to be counted as relevant earnings for pension purposes from 6 April 2025.
Planning point – maximising pension contributions before 6 April 2025 whilst FHL profits still qualify as relevant earnings could therefore be beneficial.
Please do speak with one of our financial advisors, should this be relevant to you.
Capital Gains Tax (CGT)
As mentioned, there are a few CGT benefits available to FHLs being considered a trade, rather than investment property for CGT purposes.
BADR is available where a FHL business ceases before April 2025 and may be claimed on the disposal of the assets used in the FHL business for up to three years after cessation.
Planning point – you could therefore cease the FHL business before 5 April 2025, let the property on a long term let and still have the ability to claim BADR up until April 2028.
A risk to this approach is the impending Budget and suggestions that BADR itself may be at changed or abolished.
FHLs have also benefitted from gift relief whereby an FHL property can be gifted with no immediate charge to CGT - an option which will not be available following 6 April 2025 unless gifting into a Trust. Thought should be given to making use of this relief now with potential IHT benefits too.
The final option, rollover relief, can also defer the gain made on a FHL by investing the proceeds into other business assets, such as farmland or capital improvements to existing assets within 3 years. This way you can delay the CGT until the sale of the replacement asset. There is also the option to rollover into plant and machinery, albeit on a more temporary basis.
It should be considered that the property market might not be conducive to a quick sale of a FHL property to allow for rollover relief and you should avoid any contrived arrangements involving disposals to connected parties such as family members as anti-forestalling measures have been introduced.
Planning points summary – consider ceasing the business, gifting onto a future generation or selling and rolling over into other qualifying assets ahead of 6 April 2025.
Income tax
An unexpected allowance in the rule change is that FHL losses not utilised by April 2025 will be able to be offset against other rental profits from the same business rather than only against future FHL profits.
Unfortunately, if you have rental profits within a farming partnership, and a FHL with losses outside of the partnership, you will not be able to offset these losses as they are considered different rental businesses.
FHL income also benefits from the flexible sharing of profits / losses between owners. From 6 April 2025 the profit share will need to match the ownership, commonly 50:50 between husband and wife. If it is beneficial to split the income differently, then a declaration of trust should be considered.
SOPHIE HARRIS
Farms & Estates Team sophie.harris@albertgoodman.co.uk
KATE HARDY
Farms & Estates Team
kate.hardy@albertgoodman.co.uk
INTEREST RATES FINALLY COMING DOWN!
In August, we had the long-awaited news that the Bank of England (BoE) cut the base rate which was welcome news to most across the country. Whilst small, the cut from 5.25% to 5% was a signal that (fingers crossed) more rate cuts are to come.
For those with variable rate debt, they will see a reduction in their monthly repayments with every rate cut. Illustrated below is the impact on monthly repayments for a farming business with a £500,000 variable rate loan over 20 years at 2% plus BoE base rate.
MONTHLY REPAYMENTS
As you can see above, if we have a reduction in the BoE rate to 3.75% then a business with the above debt would save £366 a month.
The questions on the minds of many business owners taking out new debt now are:
1. What is the new normal base rate; and
2. Should we consider fixing our debt?
On the question of the new normal, many high street banks are suggesting a rate between 3.5% - 4% before the end of 2025. For those businesses taking out new debt, they have two options.
1. Choose a variable rate loan, hoping that interest rates will come down.
2. Fix the loans now at the rates quoted.
It is important to review both the variable and fixed rate options available to you. This is because often the markets have priced in the rate cuts in their fixed rate offer. This could mean that the margin between the fixed and variable is quite small and, in some cases, the fixed could be cheaper.
Of course, which option is best for you depends on your attitude to risk and business cashflow. It is also important to remember there are often repayment penalties for fixed rate loans when they are repaid early. This can be costly if you are in the fortunate position to be able to repay the loan early in the future.
On a side note, it is also worth noting that base rate cuts also decrease the governments’ interest payments on government held debt. Reductions in the base rate could help alleviate some of the blackhole mentioned by Rachel Reeves.
CURRENT VACANCIES:
Accounts Senior - Farms & Estates Team
TAUNTON
Accounts Senior Position | Farms & Estates | Taunton
Trainee Accountant Roles – Various Teams
VARIOUS LOCATIONS
Trainee Accountant Roles | Albert Goodman
YOU ARE INVITED TO... AUTUMN AGRICULTURE SEMINARS
We are delighted to have joined forces with Clarke Willmott, Lloyds Bank and Andersons for a series of four FREE seminars this Autumn.
Join us for an insightful agricultural seminar where our expert speakers will each present on their specialised knowledge areas, seamlessly tying their insights together to address the most pressing issues in the industry today.
Using a real-world case study, they’ll offer practical solutions that tackle everyday challenges from multiple angles.
TOPICS UP FOR DISCUSSION INCLUDE:
Structuring a SUCCESSION PLAN to ensure a seamless transition to the next generation.
Navigating the complex Agri tax regulations to MINIMISE TAX LIABILITIES
The benefits and challenges of SHARE/CONTRACT FARMING
With FOUR venues to choose from, we hope you will be able to join us.
