The 2024 Spring Budget introduced some changes that will significantly impact farm businesses, especially those that have ventured into the realm of furnished holiday lets.
Farmers who have diversified in this manner will face tax increases, following the Chancellor’s announcement that the favourable furnished holiday lettings (FHL) tax regime will be abolished from 6 April 2025.
Furnished holiday let tax benefits lost
The FHL regime has been around for many years and provides certain benefits for those offering short-term holiday accommodation. This includes tax advantages for pension contributions, reduced rates of capital gains tax on the sale of the property and mortgage interest relief.
If all of these advantages are lost, and holiday cottage owners face increased tax bills from April 2025, a review of whether a property makes commercial sense, and whether it should be disposed of before changes to CGT are introduced, should be considered. The rate of CGT payable by a higher rate taxpayer was reduced from 28% to 24% on 6 April 2024, although the basic rate remains at 18%.
Move on environmental land management schemes
On a more positive note, the Treasury also announced the outcome of the consultation into environmental land management schemes. From April 2025, the existing scope of Agricultural Property Relief (APR) will be extended to include land managed under environmental agreements - that might otherwise not qualify due to it not being occupied for the purpose of agriculture - meaning it is eligible to be passed on free of Inheritance Tax.
This may alter how farmers engage with the land they steward, giving them more choice about how to use their land, and includes schemes covered by the Sustainable Farming Incentive (SFI), Countryside Stewardship and other stewardship schemes, Landscape Recovery, and the England Woodland Creation Offer.
The Government will not restrict APR to tenancies of land of eight years or more. An independent review had recommended that land let out under a Farm Business Tenancy should only qualify for APR where the tenancy was for at least eight years. The Government has announced that there will be no changes to the current system where land qualifies for APR after seven years of ownership.
A working group, including industry representatives, is due to be established to identify problem areas and provide further guidance.
Stamp Duty Land Tax – Multiple Dwelling Relief to be abolished
Jeremy Hunt also abolished Multiple Dwellings Relief (MDR) for Stamp Duty Land Tax (SDLT). This is a claim that can be made when purchasing a property or business consisting of more than one residential property. This can be useful when buying a farm with a farmhouse and a few cottages as it calculates the SDLT on the residential dwellings as if separate residential properties were being purchased.
MDR is to be abolished from 1 June 2024, unless contracts for the purchase had already been exchanged by midnight on 6 March 2024. After 1 June there will be more SDLT costs to pay.
If you would like to discuss how these changes could impact your farm business, please get in touch. Call 0808 144 5575 or email help@armstrongwatson.co.uk.
