Welsh Farmers Get Minimal Relief After Tax U-turn

Understanding the Impact of Recent Tax Changes on South Wales Farmers

As the details of last month’s Budget come to light, and with a recent reversal by the chancellor, farmers in south Wales are finding only limited relief from the financial pressures they face. The situation is becoming increasingly challenging as they navigate rising asset values and more complex financial decisions.

Business or Agricultural Property Relief (BPR/APR) Reforms

One significant change announced on December 23 was the increase in the limit for 100 per cent Business or Agricultural Property Relief (BPR/APR). This was raised from £1 million to £2.5 million per person upon death, provided the conditions of the relief are met, for deaths occurring after April 5, 2026. This move came as a welcome adjustment following the previous budget, which allowed 100 per cent of any unused BPR/APR to be transferable between spouses.

With this new threshold, up to £5 million in relief at 100 per cent can be available at the second spouse's death. Previously, any amounts exceeding the £1 million limit would only qualify for 50 per cent relief. However, there are important considerations if the first spouse died on or before April 5, 2026, when the BPR/APR at 100 per cent was effectively unlimited if the conditions were met. If assets were transferred at the first death to someone other than the spouse, where BPR/APR was fully utilised, the transferable £2.5 million may be restricted.

These changes will significantly reduce the number of farms and businesses that would have been affected by the removal of unlimited APR/BPR at 100 per cent.

Financial Planning Challenges

The UK Government has extended the freeze on personal allowances and each tax band for income tax until April 2031. Combined with rising prices, this decision will place additional pressure on farmers who only pay themselves up to the top of the basic rate band. There is a risk that this could push them into the higher rate tax bracket. Careful consideration is needed to determine the most tax-efficient payment structure, though this may require ongoing adjustments.

For farmers operating through a company and receiving payments via dividends, the basic and higher rates for dividends have increased by 2 per cent, reaching 10.75 per cent and 35.75 per cent respectively. However, the additional rate remains unchanged at 39.35 per cent for the highest taxpayers. This makes the decision to pay directors/shareholders via dividends above the personal allowance band a more nuanced one, and it should be reviewed based on individual circumstances.

Increased Taxation on Rental Income

Farmers who have diversified into furnished holiday lets or other rental properties will now face higher taxation on their rental income. From the 2026/27 tax year, all rates will increase by 2 per cent, reaching 22 per cent, 42 per cent, and 47 per cent. This change adds another layer of complexity for farmers, as much of their value is tied up in assets with fewer opportunities to access that value during their working lives.

Expert Insight

Nick Park, director of Cwmbran-based Accountants & Tax Advisors, Green & Co, and a member of the Country Landowners Association (CLA) National Taxation Committee, highlights the importance of staying informed about these changes. His expertise provides valuable guidance for farmers navigating the evolving tax landscape.