Welcome to the summer edition of the Albert Goodman Farms and Estates Team Rural Intelligence.
As I started to write this, we finally had some rain, after the warmest and sunniest spring on record threatened our arable harvest. This came ahead of the spending review, in which it was expected that the government would cut the agricultural budget. In the context of the volatile weather conditions, many warned this would throw off track nature recovery efforts which helps build farm resilience to climate shocks. We hoped our government understood the impact of this on costs to the consumer, inflation in the supermarkets and our food security. As this newsletter goes to press our Chancellor will have delivered her review, the impact of which is summarised in Tom Stone’s article.
The combination of domestic policy change and international trade developments presents significant challenges for UK farmers, alongside the proposed IHT measures. This creates uncertainty in the sector, with negative messaging not good for growth in our economy. Ongoing dialogue between the government and farming communities and organisations will be crucial to address these issues and support the sustainability of UK agriculture.
In the meantime, it is important to build resilience and a strong financial base so that the many opportunities that exist in land-based businesses can be pro-actively explored.
In this newsletter we aim to keep you abreast of changes ahead as well as insights into opportunities to help you stay on top of the financial and tax matters for your business so you can plan with confidence.
All of us in the Farms and Estates Team wish you a productive and prosperous season ahead.
SAM KIRKHAM Partner and Head of Farms & Estates Team
National minimum wage and the accommodation offset rule
Most employers are aware of their obligations to pay staff at least the National Minimum Wage (NMW) or National Living Wage (NLW). These rates increased on 1 April 2025 and are now as follows:
Example: Free Accommodation
Paul is 24 and earns £11.60 an hour, which is below the NLW. He works 40 hours a week and receives free accommodation for the full week.
Weekly offset: £74.62
Gross pay: £11.60 × 40 = £464
Total: £464 + £74.62 = £538.62
Effective hourly rate: £538.62 ÷ 40 = £13.46
Paul’s effective rate is £13.46 per hour—above the minimum requirement.
The following components count towards the NMW:
1. Gross salary
2. Bonuses
3. Commissions
4. Incentive payments
5. Piecework payments
6. Accommodation offset
The first five are straightforward cash payments. The accommodation offset, however, is more complicated and applies when an employer provides accommodation to their employees.
An employer is considered to be providing accommodation if any of the following conditions apply:
The accommodation is a requirement of the job – including job-related accommodation that may be exempt from benefit-in-kind reporting. See Holly’s article on P11Ds in our Spring Newsletter https://albertgoodman.co.uk/insights/ p11ds-common-benefits
The employer (or a connected person or company) owns or rents the property in which the worker resides, even if the accommodation is not contractually linked to the job.
The employer (or a partner, shareholder, or director) receives a payment or benefit from the worker’s landlord or a member of the landlord’s family.
Accommodation is taken into account even if the worker pays rent—whether this is deducted from wages or paid separately under a tenancy agreement.
Accommodation Offset Rates (from April 2025):
Example: Rent Charged Below the Offset Rate
Harriet is 28 and earns £12.50 per hour, which is above the National Living Wage. Her employer charges £8.50 per day for accommodation, which is below the daily offset of £10.66.
No adjustment is required—Rosie’s pay remains compliant.
Example: Rent Charged Above the Offset Rate
Andrew is 35 and earns £12.30 per hour. He works 50 hours a week and is paid every four weeks. His employer charges £125 per week for accommodation.
Andrew’s effective hourly rate is £11.29—below the legal minimum of £12.21.
Conclusion
To avoid inadvertently underpaying staff, employers should regularly review accommodation charges in the context of the NMW. Failure to comply could lead to enforcement action, back payments, and reputational damage.
sarah.lemon@albertgoodman.co.uk
SARAH LEMON
Farms & Estates Team
SPENDING REVIEW
2025 – IMPACT ON THE FARMING SECTOR
On 11 June 2025, Chancellor Rachel Reeves unveiled a multi-year Spending Review, outlining departmental budgets for the fiscal years 2026–27 to 2028–29, with capital allocations extending to 2029–30.
The review signals a clear strategic shift: significant investment in the NHS, defence, housing, transport, energy and green infrastructure, but tighter control, or even cuts, on other departments.
DEFRA position
DEFRA emerges with a mixed but manageable settlement: its core and admin budgets are constrained, but targeted capital and nature spending are protected.
Summarised below are the key areas of the DEFRA budget, and the outcome of the spending review:
Area
Outcome
Significant boost to £2.7 bn/ year from 2026-27 until 2028-29 Capital Projects
£4.2 bn for flood defences, £300m for digital modernisation
Whilst the CLA and NFU have welcomed the schemes being maintained, given the cuts to core and administrative budget, time will tell on whether DEFRA can deliver their capital projects and implement environmental schemes to support our farming and landed estate clients.
Wider impacts
We will have to wait and see how the markets react to the spending review. From initial reaction, it seems that the markets are predicting interest rates to remain higher for longer, and there could be a balancing of the books in the next budget coming in the Autumn.
TOM STONE Farms & Estates Team tom.stone@albertgoodman.co.uk
Could we see a potential delay to IHT reforms?
The reforms to Agricultural Property Relief (APR) and Business Property Relief (BPR) announced in the October 2024 Autumn Budget are proposed to come into effect from April 2026. The government has faced continued high profile lobbying to amend the proposals. So far, they have resisted, and it seems the road from full relief to only half is set.
There is renewed pressure from within government to at least delay when the changes take effect until April 2027. This article briefly looks at where we are now with the future reforms and a reminder to carefully consider wider factors in succession planning, over and above just tax efficiency.
WHAT’S NEW?
In mid-May’25, The Environment, Food and Rural Affairs (EFRA) Committee published its first inquiry report into the future of farming. The role of EFRA is to examine the expenditure, administration, and policy of the Department for Environment, Food and Rural Affairs (DEFRA) and its associated public bodies. It is a cross political House of Commons committee, chaired by Alistair Carmicheal, MP Liberal Democrats.
In May’25 EFRA reiterated its previous concerns that no wide consultation, impact assessment or affordability assessment was conducted before the announcement of the reforms. Therefore the scale and nature of the IHT changes impact on family farms, land values, tenant farmers, food security and farmers in the devolved administrations is disputed and unclear.
The EFRA report recommended, “A pause in the implementation of the reforms would allow for better tax policy to be developed and the Government to convey a positive long-term vision. The Government should delay announcing its final APR and BPR reforms until October 2026, to come into effect in April 2027. This would also provide farmers with more time to seek appropriate professional advice.” The government response to the report is expected 16th July’25, after this article is written.
The EFRA report follows the February’25 HMRC consultation into the application of the new rules and how they will apply to trusts. That consultation was a second stage document, having skipped the first stage which would have facilitated wider consideration for other options to reform IHT reliefs. The consultation stated draft legislation would be published “later this year” - at the time of writing we are still waiting.
RATIONALISE YOUR PLANS
Whilst we wait further clarity to come from the policy makers, for business owners, our advice is to be open in dialogue with your successors and, together, be clear on the plans for the business succession. Safeguarding the family business for generations to come is only possible if everyone’s goals are aligned.
Given the fast approaching April 2026 reform date, IHT efficiency is understandably at the forefront of our readers minds. There are, however, other taxes and equally or more important factors to bring to the table for consideration;
What does the next generation want to do?
Is the next generation ready to step up?
Is there enough cash to afford and support the multigenerational business?
If not now, when?
It is entirely possible that, once the current situation has been considered, doing nothing right now is also a valid plan. The benefits of which may be;
No immediate charge to Inheritance Tax (IHT), Capital Gains Tax (CGT) or Stamp Duty Land Tax (SDLT)
Tax free uplift to probate value for CGT purposes
Retain benefit of income and use of assets
Avoid unnecessarily complicated structures and/ or unintended consequences where premature or inappropriate gifts are made to mitigate tax exposure
Here are our top tips for successful succession and IHT planning;
1. Assess current exposure
2. Is life insurance affordable?
3. Set out family goals and objectives – what makes sense and is it in line with family values? What is the right timing?
4. If it’s appropriate to make lifetime gifts or utilise trusts - engage with your advisors early on for specific advice tailored to your family and business circumstances. This is often most beneficial via a collaborative approach between advisors.
5. If it makes sense to do so now - implement plans. Alternatively, if it is anticipated the legislation will have a material impact, have a plan ready to implement but pause until there is precise certainty over the new rules. There is a trade-off here between waiting for certainty over the future regulatory framework and starting the seven-year clock as soon as possible for both potentially exempt transfers (PETs) and transfers into trustchargeable lifetime transfers (CLTs). Equally, with only ten months to go, professional advisors will be busy, in the lead up to April 2026.
Sadly, there are cases in the news of farmers and landowners finding the turbulence in the industry and economic outlook a bleak prospect. While we do not work directly with the Royal Agricultural Benevolent Institution (RABI), we fully support the work they do, along with the farming community network (FCN), in assisting those in need. We encourage anyone who is struggling to reach out for support.
ABI KINGSBURY Farms & Estates Team abi.kingsbury@albertgoodman.co.uk
ENVIRONMENTAL LAND USE - A TAX UPDATE
Given the reduction in direct payments and the introduction of Biodiversity Net Gain in 2024 under the Environment Act 2021, we have seen an increase in environmental land management schemes.
Whilst we now have some certainty on the inheritance tax (IHT) treatment of environmental land use, there is still no guidance for income tax, corporation tax or capital gains tax (CGT) purposes.
IHT - APR
After much lobbying, one positive measure announced in the 2024 Autumn Budget was that agricultural property relief (APR) would be extended from 6 April 2025 to land managed under certain environmental agreements.
Finance Act 2025 has replaced section 124C in the Inheritance Tax Act 1984 to confirm that the land must have been previously occupied for the purposes of agriculture throughout the period of two years ending with the day it became subject to an environmental management agreement (EMA) and since then the land must have been managed under the terms of that EMA. Therefore, the relief cannot apply to EMAs on land which was not previously occupied for the purposes of agriculture.
The relief could also apply to buildings occupied with that land and used in connection with the EMA on the land.
The legislation confirms that the EMA must be legally enforceable and with a public authority. A public authority must be an authority which exercises public functions
or acts under arrangements with a public authority. Effectively a public authority refers to the UK Government, Devolved Governments (Scottish Parliament, Senedd Cymru and Northern Ireland Assembly), public bodies, local authorities and approved responsible bodies. The latter is one designated under the Environment Act 2021 s.119 and published on a list of designated bodies by DEFRA.
The purpose of the agreement must be for the protecting, restoring or enhancing the natural environment, or natural resources of land or water. In practice, it requires land to be used and managed in a way that would prevent it from being occupied for the purposes of agriculture.
From April 2026 the extended APR will be subject to the restriction to 100% relief on value over £1M with 50% relief thereafter.
IHT – BPR
There remains no clarity from HMRC on whether they would deem activities carried out under an EMA sufficient for BPR purposes – i.e. the activities amount to services or trading activities rather than investment. Therefore, it remains crucial to consider the activities involved and whether such agreements might be deemed investment. If so, whilst the land occupied under the EMA might qualify for APR, it may not qualify for BPR, and if the activities fall within an otherwise trading business, that business may no longer qualify for BPR if the investment activities account for more than 50%. Therefore, careful consideration of the business structure is required to ensure BPR is protected.
INCOME RECEIVED
There is also no clarity on the taxation of payments received under an EMA or for the sale of BNG units or carbon credits. Therefore, this remains dependant on the nature and terms of the agreement and services carried out over the term of the agreement, or creation and sale of units and credits.
The payments received could be deemed trading or property income, subject to income tax or corporation tax. As a result, where the agreements are with individuals, and payments are large, this can result in income tax liabilities with tax rates charged at up to 60%, compared to an agreement with a company chargeable to lower corporation tax rates of 25%. Where an upfront lump sum is received at the beginning of the EMA, to cover services provided over the term of the EMA, it may be possible to defer part of the charge to income tax into future years, over the term of the agreement.
In some cases, it might be arguable to charge CGT (currently at 24% for individuals). This might be the case if the Conservation Covenant, or s.106 agreement results in a loss in value of the land, or where the units/credits are held as an investment for a period before sale.
Whether the income is deemed trading or property income as opposed to capital will depend on the individual circumstances. For example, considering the creation and sale of BNG units and carbon credits, if there are multiple transactions sold with minimal interval between creation and sale, sold on commercial agreements, these could
be indicators of trading income. Whereas the creation of units which are held indefinitely with a view to increases in value, may be less likely to be trading, and a future sale may be more arguably chargeable to CGT.
CONCLUSION
Whilst there are likely to continue to be huge opportunities for landowners, it is important to take advice on the tax position and to consider the future structure for the ownership of the land and operation of the activities to ensure IHT and income tax liabilities are minimised. The use of a limited company may limit the risk to exposure to tax as well as the future risk of the agreements failing.
Tax should not be the deterrent to considering the opportunities, as where they commercially make sense, appropriate planning can be put in place to ensure maximum benefit is received from these opportunities. The wording of the contracts and the activities required to secure the income, will be crucial to protecting reliefs. Take advice early.
SAM KIRKHAM Farms & Estates Team sam.kirkham@albertgoodman.co.uk
STRONG PROFITS – A NICE PROBLEM TO HAVE
We are seeing dairy farms experiencing strong profits in 2024–25, and this positive trend is expected to continue— provided weather conditions remain favourable. At the time of writing this I should be doing a rain dance as consistent rainfall to support grass growth is essential for costeffective milk production.
Other key driving factors include, a stable farmgate milk price, together with feed and fertiliser costs coming back from the dizzy heights of 2022–23. This is great news for the industry and, while paying tax is an unavoidable part of financial success, the focus should be on ensuring you’re comfortable with the rate at which you are paying it.
Farmers averaging, which allows sole traders and partners to spread their profits over 2 or 5 years for tax purposes, may still prove useful in 2024-25. However, many will have consistently utilised at least their basic or higher-rate tax brackets and could be facing future tax liabilities at an unpalatable rate.
So, what else can be done? The million-dollar question!
1. Transfer part or all the business into a limited company
A potential way to reduce your effective tax rate to a maximum rate of 25% compared with >45% personally
Suitable for consistently profitable businesses with clear reinvestment plans so that not all cash needs to be withdrawn.
Advice needs to be taken holistically – engaging with your milk supplier and bank, while also considering the potential inheritance tax, capital gains tax and stamp duty land tax implications is crucial.
2. Spread the income across more people
If you have family members contributing to the business, are they being properly remunerated or could income distribution be justifiably spread wider, such as by:
introducing new partners into the business
starting or increasing wages or contracting charges
paying increased rents to some of the landowners
3. Capital Allowances (CA’s)
CA’s allow 100% tax relief on qualifying plant, machinery, and infrastructure investments such as milking systems or slurry storage up to £1m, so consideration should be given to plans in the next 5 years
Future proof your business with compliant and efficient slurry storage and silage clamps
Don’t spend just to save tax - even if you are saving tax at >45% you still need to finance 100% of the investment in the short term and 55% in the medium term
Align spending with your year end and check the small print! If it is on HP it needs to be in use by the year end
4. Pension Contributions
Personal pension contributions extend your thresholds for paying tax at the basic rate and higher rate saving tax at 20%.
They help you plan for the future allowing you to retire from the business and the next generation to succeed to the business (and assets) prior to any emergency inheritance tax planning
While we can recommend making pension contributions for tax purposes, we cannot advise on specific pension products. However, our financial planning team can assist here so please do get in touch if this is of interest.
KATE BELL Farms & Estates Team kate.bell@albertgoodman.co.uk
The effect of phasing out BPS on your farming business
Farming subsidies have been around since just after WWII. They were initially introduced to safeguard food supply and minimise fluctuating prices following the war.
There have been many changes over this time, moving away from a production-based subsidy to the area based Basic Payment Scheme (BPS) which replaced the Single Payment Scheme in 2015.
BPS will be fully phased out by 2027. For 2025, BPS claims will be capped at £7,200 - a more rapid reduction in income than was originally expected. This cap represents approximately a quarter of the average claim made in 2023, highlighting the significant impact on recipients.
The BPS has played a critical role in farm finances, contributing more than half of the average Farm Business Income (FBI) for cereal, general cropping, grazing livestock, and mixed farms. However, its withdrawal will significantly impact farming businesses, with the Country Landowners Association (CLA) estimating that it will remove around £20,000 from the average farm’s income.
Some farm types, particularly Less Favoured Area (LFA) grazing livestock farms, have been heavily reliant on BPS to offset financial losses. Between 2019/20 and 2021/22, BPS accounted for 76–79% of total farm income for these businesses, highlighting their dependence on the scheme.
In 2022, the successor to BPS was announced as the Environmental Land Management Scheme (ELMS), designed to provide more targeted support. ELMS is divided into three components:
Currently, there are around 40,000 agreements in countryside and environmental stewardship schemes, covering approximately one-third of England’s agricultural land. Plans are in place to expand this to 70,000 agreements by 2028, increasing coverage to 70%.
Dairy
Per DEFRA, the average income for a dairy business between 21/22 and 22/23 was £133,600 and direct payments accounted for 17% of this income. Since 22/23, milk prices have increased, and subsidies reduced so this percentage would have fallen.
In some of the 2024/25 accounts that we have seen, the BPS income equates to about 1% of total income.
With the 2025 BPS payment capped at £7,200, this equates to 16,000 litres of milk at a rate of 45 pence per litre –the equivalent to less than 50 litres per day. While this reduction in income, is significant, at this level, efficiencies and improvements to the dairy management should enable the business to minimise the financial impact.
Arable
The average income for arable businesses was £123,300 between 21/22 and 22/23, with direct payments accounting for 32% of this figure, so around £40,000.
In the 2024/25 accounts this has fallen to below 10% of income in many cases, ignoring any SFI or stewardship scheme income and therefore has had a huge impact on income.
The 2025 BPS cap, combined with the prevention of new SFI claims, will have a significant impact on many arable farms. With the £7,200 cap equating to 40 tonnes of crop at £180 per tonne, farms would need to achieve an additional 0.2t/ ha yield on 200 hectares to offset the financial shortfall.
Livestock
During the 2021/22 to 2022/23 period, direct payments accounted for 67% of income for lowland livestock farms and 68% for those in Less Favoured Areas (LFAs). Average farm incomes stood at £23,500 for lowland farms and £36,900 for LFAs, with these subsidies making up two-thirds of total earnings—playing a crucial role in farming profitability.
By 2024/25, direct payments have significantly declined, now representing around 10% of total farm income. With the 2025 BPS cap set at £7,200, this equates to approximately:
Three fat bullocks at £2,400 each,
Four store cattle at £1,800 each, or
40 fat lambs at £180 each.
The profit margins on these livestock will vary depending on whether they are home-grown or purchased, further influencing financial sustainability.
Pigs and Poultry
As intensive pig and poultry farms are run on small areas of land, the area-based BPS was negligible for these businesses historically. As a result, the capping has not affected their income.
Demand for eggs and poultry meat has continued to grow and prices have been very good as a result.
Summary
The recent increase in milk and livestock values will help offset some of the lost BPS payments. However, the capping of BPS for 2025 and the shutting of the door on SFI, for now, will add extra financial challenges to farming businesses. In addition, for businesses purchasing animals for finishing, the need for additional capital will be a significant challenge. Securing stock requires upfront investment, with funds tied up in livestock until they are ready for sale.
Countryside Stewardship grants and existing SFI agreements will help bridge the financial gap left by the reduction in BPS payments. Additionally, many farms are already adopting improved management practices, which will further support income generation and offset subsidy losses.
Capital grants have reopened, though with capped amounts, providing valuable support for the ongoing investments required in farming businesses.
Effective cashflow management— through budgeting, monitoring, and adjustments—remains essential for running a farm efficiently both now and in the future. Maximising the use of available support and grants will help ensure farms have the necessary resources to remain financially resilient.
JAMES BRYANT Farms & Estates Team james.bryant@albertgoodman.co.uk
Holiday accommodation: trading or property investment income
Furnished holiday lets (FHLs) will always be an attractive diversification for farmers looking to provide an additional income stream to support their business. However, with the FHL tax regime abolished in April 2025, they are now less attractive propositions for tax purposes.
Until 5 April 2025, FHL businesses qualified for preferential income tax reliefs, such as the ability to claim capital allowances on fixtures, fittings and furnishings within the property and capital gains tax (CGT) reliefs, such as holdover and rollover relief and business asset disposal relief (BADR).
The FHL regime acknowledged that FHLs require significantly more effort than standard long-term lets and were therefore treated more like a trading business than just the passive holding of investment property.
From 6 April 2025, FHLs no longer hold this preferential status and income and gains from FHLs are instead treated as normal property investment businesses. In summary, this means that:
Income will be reported as part of the property rental business.
They will no longer qualify for capital allowances within the building –instead, businesses can claim for ‘replacement of domestic items’ relief, but this does not include relief for the initial outlay.
For property owned jointly by a married couple or by civil partners, strictly the income will be taxed on them 50:50, unless they hold unequal beneficial interests in the property and have made a declaration using Form 17, or they are running it in a partnership business.
FHL income will no longer count as earnings for pension contribution purposes.
Finance costs will be subject to tax relief restrictions.
FHLs will no longer qualify for CGT reliefs, such as holdover relief and rollover relief.
BADR may be available, but only if the FHL ceased before 5 April 2025.
The transitional rules were, however, more favourable than expected, allowing any unused capital allowances to be automatically transferred to the ongoing property business and any brought forward FHL losses to be offset against all property income going forward.
TRADE VS INVESTMENT
Unfortunately, while we appreciate FHLs require substantially more effort than a long-term let, HM Revenue & Customs (HMRC) have long considered that the income still only constitutes a return on an investment.
For many years, up to the early 1980s, FHLs were regarded by many as on the borderline of trading income and a property business. This led to numerous disputes. Then two judgments (see the cases of Gittos v Barclay and Griffiths v Jackson and Griffiths v Pearman), put the matter beyond doubt and found, as a general principle, that income from FHLs was not trading income. These cases have since been supported by the cases of Julian Nott, Maclean and Jones where HMRC confirmed that to be trading there must be services provided over and above those normally provided by a property letting landlord.
Whilst the Office of Tax Simplification (OTS) previously proposed introducing a statutory ‘brightline test’ to help differentiate trading businesses from investment businesses, in the event of the FHL rules being abolished, unfortunately, this proposal was rejected by HMRC.
As a result, we are left with having to consider whether a particular FHL business might qualify as trading for tax purposes based on the facts of the individual case. HMRC confirmed that determining whether business activities qualify as a trade will be decided on the facts, with reference to their core principles and legal precedents established through case law.
SO, WHAT CONSTITUTES A TRADE
HMRC confirm in their manuals…
‘income from furnished lettings is rarely trading income, even when the landlord works full time running the rental business.
It is only treated as a trade when the landlord remains in occupation of the property and provides services substantially beyond those normally provided by a landlord. This will be the case, for example, where the activity consists of providing bed and breakfast, or running a hotel or guesthouse.’
To determine whether an activity is a trade, the courts have also found the so called ‘badges of trade’ helpful indicators of trading. These include:
Profit-seeking motive – is the primary goal to generate profits to support a trade?
Number of transactions – are there repeated transactions to support a trade?
Nature of the asset – is the asset (in this case property) a type that can only be turned to advantage by sale or can it yield an income – the latter supporting the argument for investment.
Existence of similar trading transactions or interests –does the individual or business engage in similar activities elsewhere and are those activities trade or investment? For example, a builder who has built and sold houses alongside his building contracting trade is arguably chargeable to income tax as trading on both activities.
Changes to the asset – if an asset is sold, you would expect the asset to have been modified or repaired before selling at a profit for the activity to be a trade? In a FHL business there is no asset bought and sold.
The way the sale was carried out – was the transaction carried out in the manner typical of a trading business? And are assets bought and sold turned around quickly.
The method of finance – Where assets are bought and sold, if finance to purchase is long term this would indicate the asset is bought for investment.
Method of acquisition – is the business operated in a way typical of a trading business?
Clearly, given the asset itself is a property, and the property is what creates the income, the badges of trade do not help the argument for a FHL to be trading. Instead, we must look at the services provided.
If, for example, a FHL owner provides substantial additional services, such as providing food, guided walks, tractor rides, events, such as live music, BBQs, pizza evenings, then HMRC may assess that the business meets the trade criteria.
Ultimately, the FHL would need to be run more akin to a bed & breakfast or hotel, to qualify for this preferential trading treatment. To support this any additional services would need to be separately identified and charged, to be able to support a trading position.
So, although the FHL regime has been abolished, if the property business, because of the substantial services provided, is considered ‘trading’ for tax purposes, a more favourable tax treatment may be accessed.
Where there is a trading business, the normal trading rules will apply. This enables businesses to not only tap into the more favourable income tax and CGT reliefs, as previously under the FHL regime, but also gain from a more favourable trading treatment. For example, under the FHL regime, FHL losses were only able to be offset against the FHL business. Going forward under normal property loss rules, FHL losses can only be offset against other property income.
However, if the FHL business is deemed trading, trading losses can instead be offset against total income in the same or previous year. In addition, there are favourable loss relief claims available in the early years of a trading business.
Given the lack of clarity, and no guidance from HMRC, without a brightline test it is likely we will see more cases on this subject, which may provide more clarity between the trading and investment status of FHL. In the meantime, FHL owners will need to consider whether they wish to benefit from trading status for tax purposes and whether to do this they can provide the services required to their guests during their stay.
FOR THOSE OPERATING UNDER THE TOUR OPERATORS MARGIN SCHEME (TOMS) FOR VAT
Where property is leased and subsequently let to holiday makers on a short-term basis, the TOMS VAT scheme, which means you only charge VAT on your profit margin, can save a considerable amount of VAT. However, businesses who lease properties on long-term arrangements but resell on a shortterm basis would be well advised to consider their position, as highlighted in the recent Tax Tribunal involving Sonders, a company letting properties to holiday makers.
If this is of interest then please read the full article here https://albertgoodman.co.uk/insights/vat-holidaylettings-and-the-tour-operators-margin-scheme
KATE HARDY
Farms & Estates Team kate.hardy@albertgoodman.co.uk
FIRST TIER TRIBUNAL DENIES SHOOT LOSS RELIEF TO ESTATE OWNER
In May, the First Tier Tribunal (FTT) delivered its decision in the case of Charlotte MacDonald v HMRC [2025] UKFTT 495 (TC), addressing the eligibility of loss relief claims under the Income Tax Act 2007 (ITA).
Charlotte MacDonald (Charlotte) owned a typical mixed arable and grazing land estate with woodland and residential let properties as well as a biomass boiler. The arable land was let on a Farm Business Tenancy (FBT) and the grazing land on grazing tenancies. Charlotte ran a shoot over the estate which operated over the woodland and farmland over five months of the year. Therefore, there were effectively three income streams – the shoot, biomass boiler and rental income.
Charlotte was actively involved in the shoot, attended and hosted the shoot days and was responsible for safety, positions of the guns on each drive, hospitality and she manged the bookings and arranged catering. Charlotte employed a Head Keeper who maintained the estate and filled the biomass boiler, which provided heating to two of the rental properties. On the shoot days he co-ordinated the beaters and planned the drives. He was also responsible for the rearing and release of birds, vermin control, tree management and security.
The shooting enterprise generated tax losses for the years 2017 to 2021, which Charlotte set against her general income (i.e. biomass and rental profits) through sideways loss relief. HMRC challenged these claims, arguing that the shoot was not operated on a commercial basis with a view to profit.
The ITA imposes restrictions to loss relief claims, stipulating that relief is only available if the trade is conducted:
On a commercial basis; and
With a view to the realisation of profits.
Both conditions must be satisfied for relief to apply.
The Tribunal acknowledged that the shoot was conducted on a commercial basis. Evidence showed that Charlotte actively managed the shoot, employed staff, maintained budgets, and sought to increase turnover, which had risen by approximately £50,000 in recent years. However, the Tribunal found that the shoot was not carried on with a genuine intention to make a profit. Despite efforts, the shoot had incurred losses in nearly every year since 2005, totalling over £750,000, with only one year showing a profit. The Tribunal noted that, for a commercial venture, especially one which was struggling to realise a profit, it would be reasonable to expect to see business plans, budget projections, notes of meetings and of plans to improve profitability. They concluded that there was no reasonable expectation that the shoot would become profitable, and thus, the subjective element of the commerciality test was not met. Additionally, and most interestingly, Charlotte argued that
the shoot was part of a larger undertaking, integral to the estate’s operations, so profitability should be considered in that context under Section 66(4). Where a trade forms part of a larger undertaking, when considering whether there is an expectation of profits, Section 66 (4) allows the commercial profit test to be read as references to profits of the larger undertaking, not just the individual trade. When taken as a whole, (the shoot, biomass and rentals) the larger undertaking, net of the shoot loss, made profits.
Charlotte argued that the income from the shoot and rentals would be diminished without the existence of the other, or the costs associated with each would increase without the other. She maintained that the presence of the Head Keeper assisted with the level of rents on the land due to the vermin control and maintenance carried out because of the shoot. Further that the shoot could not take place anywhere other than on the woodland and farmland of the estate – i.e. both are required for either to function.
However, whilst the Tribunal agreed the shoot was part of a larger undertaking, carried on on a commercial basis and that the activities were interlaced and interconnected, being managed together, with staff working across all the properties used in the activities, the Tribunal rejected this claim. They determined that the shoot should be viewed on its own and whilst the various activities may share the same location, the shoot and rents are not sufficiently interconnected or dependant on each other. They found that there was not a single trade but that each activity could operate without the other – i.e. the residential and farm tenancies could exist without the shoot and indeed did during the Covid pandemic. Neither activity is reliant on the other and neither enhances the profitability of the other.
The Tribunal upheld HMRC’s assessments to disallow the sideways loss relief claims. The case reminds us of the importance of demonstrating both the commercial nature of the trade and a genuine profit motive when claiming loss relief. Numerical budgets and plans for profitability are crucial, particularly where the activities are currently loss making. Further, that to argue the profit test should be based on the profits of a single larger undertaking, will require significant evidence to show that the individual activities could not operate on their own and without the others. Therefore, for estate or farm owners considering diversification projects, consider how this might be evidenced in business plans, particularly if losses are expected for an initial start-up period.
SAM KIRKHAM Farms & Estates Team sam.kirkham@albertgoodman.co.uk
DOUBLE CAB PICK UPS AND ELECTRIC CARS
Historically the tax relief available on both double cab pick-ups and electric cars has made them an attractive option for many businesses, either for use by the owner or as a company vehicle to employees. With effect from April 2025 , changes have been made to both, that make these less beneficial – quite significantly in the case of the double cab pick up.
The government introduced the idea of removing the beneficial tax breaks on double cab pick-ups earlier in 2024 but then made a rapid u turn. In the small print of the Budget in October 2024 however, these were reintroduced to take effect from April 2025.
For clarity, a double cab pick-up is one that has a row of seats behind the driver making it capable of seating four passengers, four doors and an uncovered pick up area behind the passenger cab.
Historically, provided the pick-up was capable of carrying a payload of at least 1 tonne, for income tax and corporation tax purposes, it was treated as commercial and 100% tax relief could be claimed against the cost. In addition, where the vehicle was provided by a company to an employee, the benefit in kind charge was based on the far lower, flat rate for vans rather than on a percentage of the list price of the vehicle. Both of these have now changed, with tax relief available based on car rates and the benefit in kind charges calculated as for cars.
The difference will potentially be significant. For example, a new Toyota Hilux double cab pick-up ranges between £40,000 and £70,000, depending upon the specifications. Under previous tax rules, a £50,000 vehicle could have resulted in a £12,500 saving for a company paying corporation tax at 25%, or £20,000 plus National Insurance for a sole trader taxed at the higher rate of 40%.
Under the new rules, the tax relief for cars with co2 emissions of over 50g/km is just 6% of the purchase price. A £50,000 vehicle falling into this category will now attract allowances in year 1 of just £3,000, saving tax of £750 for a company paying tax at 25% – a reduction of £11,750. For individuals paying higher rate tax, the increase in tax alone could be £18,800.
BENEFITS IN KIND
From April 2025, the van benefit – currently £4,020 for 2025/26 - will continue to apply for vehicles purchased before this date, remaining in place until the earlier of the date the vehicle is sold or April 2029. For an employee paying tax at the basic rate of 20% this will add £804 to their tax bill, increasing to £1,608 for a higher rate taxpayer.
After April 2029, or if the existing pick up is disposed of and replaced with a new one before that date, the charge will be based on the list price of the vehicle and the CO2 emissions. For example, a £50,000 pick-up with CO2 emissions of 250g/km, would be taxed at 37% of the list price, resulting in:
A benefit of £18,500,
A tax charge of £3,700 for a basic rate taxpayer,
A £7,400 charge for a higher rate taxpayer.
Additionally, the employer would face an increased Class 1A National Insurance liability of £2,775 – up from £603.
Looking ahead, single cab pick-ups may become more popular – particularly where vehicles are provided by a company to an employee. Business owners will need to watch they don’t get caught out by the new rules by retaining vehicles beyond April 2029.
ELECTRIC CARS
Changes are also being made to the tax treatment of electric cars provided to employees. Depending upon the co2 emissions and the electric range, the benefit in kind charges are set to increase by 1% per year until 2029-30.
Currently, a vehicle emitting 50g/km of CO2 or less with an electric range over 130 miles is subject to a 3% charge of the list price, rising to 7% by 2029/30. However, for vehicles with the same emissions but an electric range under 30 miles, the charge will increase to 19% by 2029/30.
For tax relief purposes:
New and unused electric vehicles or those with 0g/km CO2 emissions qualify for 100% tax deduction.
Second-hand vehicles or those emitting 50g/km or less are eligible for an 18% deduction.
Vehicles exceeding 50g/km CO2, whether electric or not, can only claim a 6% deduction.
From April 2025, electric cars will also become subject to road tax, with the expensive car supplement of £425 in addition to the standard charge of £195.
As such, whilst electric cars are still more attractive from a tax perspective, the extent to which this applies is reducing.
LIZ JONES Farms & Estates Team liz.jones@albertgoodman.co.uk
MAKING TAX DIGITAL FOR INCOME TAX
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WHAT SHOULD I DO NOW TO PREPARE?
The Making Tax Digital for Income Tax (MTD IT) regime is one of the biggest changes to the tax system in many years and will fundamentally change how taxpayers interact with HMRC.
With HMRC now having started writing to taxpayers about the MTD IT rollout, we hope the below will help to explain what it is, when is starts and who it affects, before covering what practical steps you should be taking now to prepare!
So, what is MTD IT?
The MTD for IT regime is the new way that taxpayers will need to keep and submit their records to HMRC. It is a requirement to keep, maintain, and submit digital records to HMRC. This means paper records will no longer suffice for those affected.
It will also see a systemic shift from submitting 1 annual self-assessment tax return to submitting 4 quarterly updates as well as one annual final declaration (i.e. 5 submissions).
When does it start and who does it affect?
The regime will be mandated from 06 April 2026 and rolled out in 3 tranches:
From 6 April 2026 - sole trade businesses and landlords with qualifying income over £50,000 are required to register and comply.
From 6 April 2027 - sole trade businesses and landlords with qualifying income over £30,000 are required to register and comply.
From 6 April 2028 - sole trade businesses and landlords with qualifying income over £20,000 are required to register and comply.
It is important to note that qualifying income is based on the combined income (not profits) from sole trades and property only. Other income sources such as Employment, Pensions, Interest on savings or anything else for that matter will not count as qualifying income.
How are HMRC judging who will be affected?
HMRC will be using the taxpayers submitted tax returns for the tax year ending 5 April 2025 when assessing whether an individual is mandated to use the MTD IT regime.
The filing window for these tax returns is now open, however the deadline for filing these tax returns is 31 January 2026. Filing your tax return at the end of this window leaves very little time for the administration required to join the scheme and transition your records to digital software.
We therefore strongly recommend taking a proactive approach and filing your 24/25 tax return as early as possible. Doing so will leave plenty of time for you or your advisor to carry out the required steps so that you are ready come April 2026.
Required steps pre 5 April 2026
Sign up to MTD for IT with HMRC
Provide authority to your agent (e.g. Albert Goodman)
Transfer your records onto MTD compatible software
Link this software to your agent’s platform
Understand how to use your chosen software (this may require training)
Start keeping your records digitally on the new software
Practical Steps – What should I do now?
1. Talk to an advisor that understands the MTD for IT regime – at Albert Goodman we are working with HMRC & leading software providers and are at the forefront of this change, so please get in touch if you need any help.
2. Prepare and submit your tax return for the year ending 5 April 2025 as soon as possible – Don’t wait until the end of January to do this!
Preparing your tax return now will help you to understand your qualifying income for the year of assessment. In turn, this will enable you or your agent to carry out many of the preparatory steps in advance.
Also, contrary to many opinions, you don’t have to pay your liability as soon as it’s filed. You are well within your rights to submit now and pay just before the deadline.
3. Ensure you have a dedicated business bank account for each type of business – Doing this will dramatically reduce admin time when it comes to keeping digital records. It will also allow you to easily receive the admin benefits that automation provides. As an example, an individual with a sole trade business and a rental property will ideally have a dedicated business bank account for each business.
4. Get into the habit of completing your bookkeeping on a regular basis – MTD IT will require quarterly submissions and the time between the quarter ending and the submission deadline can be as small as 1 month and 2 days! Therefore, regular record keeping will maximise this filing window and make the process much less daunting.
5. Consider being part of the Beta Testing Phase – at Albert Goodman we are part of HMRC’s MTD IT beta testing phase. This allows us to work with HMRC to test and have a say in how the regime is working. Being part of the testing phase will help you understand exactly how this will work and set you up ahead of the game!
We will continue to keep you updated and provide support as we move closer to the rollout. However, should you have any immediate questions or wish to be part of the beta testing phase, please get in touch.
DAVID LAKE Tax Manager david.lake@albertgoodman.co.uk
SAM KIRKHAM
sam.kirkham@albertgoodman.co.uk 01823 250350
IAIN MCVICAR
iain.mcvicar@albertgoodman.co.uk 01823 250283
KATE HARDY
kate.hardy@albertgoodman.co.uk 01305 752064
KATE BELL
kate.bell@albertgoodman.co.uk 01823 250286
KEEPING IN TOUCH
If
TOM STONE tom.stone@albertgoodman.co.uk 01823 250397
JAMES BRYANT james.bryant@albertgoodman.co.uk 01823 250372
LIZ JONES liz.jones@albertgoodman.co.uk 01823 286096
ABI KINGSBURY abi.kingsbury@albertgoodman.co.uk 01823 286096
