2024 Spring Budget explained

While Chancellor Jeremy Hunt’s 2024 budget, the last before the general election, was a mixed bag for the rural economy, the CLA secured a significant win following years of lobbying and policy work regarding agricultural property relief (APR).

It was announced that land managed under environmental agreements will qualify for APR, meaning landowners will not lose this tax relief if they change the use of their land to deliver purely environmental schemes. This will apply from April 2025. HM Treasury credited the CLA’s work as playing an important role in the government’s decision.

Elsewhere in the budget, plans were announced to abolish the Furnished Holiday Lettings (FLH) tax regime, meaning that short-term and long-term lets will be treated the same for tax purposes. The CLA recognises that this may cause significant concern among those with diversified farming businesses that rely on FHLs as a source of income.

Other announcements include a reduction in the rate of capital gains tax on residential properties, stamp duty land tax, a £20m community-led housing scheme and a consultation on an accelerated planning service.

The CLA has responded to these announcements, and below our experts provide analysis and explain what they mean for members.

The government has announced that agricultural property relief (APR) will be extended from 6 April 2025 to cover land managed for the benefit of the environment in England and Wales. This means that landowners will not lose the relief if they change the use of their land to help deliver the government’s environmental objectives. This decision follows significant CLA work with ministers and government officials.

HM Treasury confirmed to the CLA that, as a direct result of our engagement on this issue over the last five years, the scope of the relief has been extended to environmental agreements with, or on behalf of, the UK Government, devolved administrations, public bodies, local authorities, or approved responsible bodies. It is clear that this is intended to be broader than the Environmental Land Management Scheme in England and the proposed Sustainable Farming Scheme in Wales. However, we will need to wait to see the draft legislation to know how ‘responsible bodies’ will be defined. We will continue to work with the government to ensure that this is wide enough to cover the types of environmental land management that CLA members are already committed to or are considering.

We also called for greater clarity on how payments received from environmental markets, such as Biodiversity Net Gain and carbon credits, will be taxed. We were therefore pleased to see that the government will establish a joint HM Treasury and HMRC working group with industry representatives to work on providing this clarity. We hope this will lead to the production of detailed and relevant guidance to help taxpayers and their advisers understand the tax implications of different scenarios.

We are disappointed that the government does not have plans to amend business property relief (BPR) to confirm that environmental land management will qualify as a trading activity. We will continue to make the argument that this change, or at least firm guidance, is required to mitigate concerns around losing BPR, which can deter diversified businesses from considering environmental land management.

In the short video above, CLA President Victoria Vyvyan, CLA Chief Tax Adviser Louise Speke and CLA Director of External Affairs Jonathan Roberts discuss how this APR update may impact some land managers in England and Wales.

The video was first sent to our members-only WhatsApp Community on our lobbying news, which you can join here.

The Rock Review of agricultural tenancies recommended that, where land is let out on a Farm Business Tenancy, it should not qualify for agricultural property relief unless the tenancy is for a term of at least eight years. The government will not be taking this proposal forward.

The CLA had argued that this would be counterproductive, since it would incentivise landlords to take land back in hand, resulting in a significant reduction in the land available for tenant farmers. HM Treasury confirmed that the CLA’s views on this played an important role in the government’s decision.

The government announced that it would legislate to bring trade in carbon credits within the scope of the VAT Terminal Markets Order. This will apply a zero rate of VAT to trades in certain wholesale commodities on specified markets. We will be looking out for further details to understand exactly what is proposed, but this is potentially good news. The CLA has long argued the need for greater clarity on the VAT status of carbon credits and that they should be subject to VAT so that members can recover the VAT on costs incurred to generate the credits.

The chancellor announced the abolition of the furnished holiday lettings (FHL) regime with effect from 6 April 2025.

This is intended to eliminate the tax advantages which landlords who let out short-term holiday properties enjoy over those who let out residential properties to long-term tenants. This includes, for example, 100% mortgage interest relief and capital allowances for income tax purposes, as well as several capital gains tax reliefs, such as business asset roll-over relief and business asset disposal relief.

The proposed legislation will include rules to prevent FHL owners from exchanging their contracts now so they can benefit from existing capital gains tax reliefs.

For many farmers, the integration of FHLs into their agricultural operations has been a lifeline, helping to provide sustainable cashflow amid fluctuating agricultural markets and challenging weather conditions.  In some rural areas, this has been crucial in sustaining the local and agricultural economy.

Draft legislation is expected later this year, which will allow the CLA to raise our concerns about the effect the abolition will have on members and rural diversified businesses, and to seek measures to mitigate this.

The chancellor has reduced the higher rate of capital gains tax (CGT) on residential property gains from 28% to 24% for individuals, trustees and personal representatives. The lower rate will remain at 18%. The new rate will be effective for all house sales that exchange contracts on or after 6 April 2024.

We welcome the reduction of the higher CGT rate from 28% to 24%, which is a positive step towards fostering a more encouraging tax environment for investments and asset management.

However, we will continue to lobby the government to address a more pressing issue: the failure to introduce a new rebasing date, with the last rebasing taking place in 1982. This means that landowners and rural businesses who are long-term asset holders have to deal with the complications of ascertaining the 1982 value. Rebasing to a more recent date will also remove the disproportionate tax burdens that arise from inflationary increases in asset values for long-term asset holders. Addressing this is essential to ensure a fair and equitable tax system that accurately reflects the current value of long-held assets.

Members who are considering a sale or gift of residential property should consider the timing. In most cases, it may be better to postpone exchanging contracts or making the gift until 6 April to pay the lower rate. Do bear in mind, however, that this is also the date at which the annual exempt amount for individuals will reduce from £6,000 to £3,000. In some cases, where the gain is small, it may be better to make the gift or exchange contracts in the current tax year.

The government will abolish the stamp duty land tax (SDLT) multiple dwellings relief for transactions with an effective date of 1 June 2024 or later. It has also confirmed that the SDLT treatment of acquisitions of mixed use property will not change.

A mixed-use property is one that includes residential and non-residential property. This can be a farm, a pub with living accommodation, or a shop with a flat above, for example. While it will no longer be possible to use multiple dwellings relief when buying a farm that includes multiple homes, applying the mixed property rules can mean that the lower commercial rates of SDLT will apply.

The changes are driven by a perceived abuse in the market, with reclaim agents making spurious claims on behalf of private individuals. While the CLA accepts the need for HMRC to take action to prevent abuse, in its response to the consultation on SDLT: mixed property purchases and multiple dwellings relief, we highlighted how purchasers of farms would be affected by changes to the mixed use rules. We are pleased that the government listened to our views and will not amend the SDLT treatment on mixed-use property.

From 6 April 2024:

• The main rate of employee class 1 National Insurance contributions (NICs) will reduce from 10% to 8%
• The main rate of self-employed class 4 NICs would reduce to 6%

The government also committed to consulting "later this year" on its 2023 autumn statement promise to abolish class 2 NICs.

For a high-income earner, the successive NI cuts would represent a saving of up to £1,508 when compared with 2022/23.

The government confirmed that the National Minimum Wage will increase from 1 April 2024 to £11.44 per hour for those aged 21 and over (from £10.18 per hour from 1 April 2023). There has also been a change to the age bands. In 2023, the higher minimum wage was paid for those aged 23 and over. For 2024, this age band has been removed and the highest age band now applies to those aged 21 and over.

The change in age bands could have a significantly negative impact on businesses who offer apprenticeships. For example, a business who employs an apprentice aged between 18 to 20 pays a minimum wage of £6.40 per hour in the first year of their apprenticeship. However, if an apprentice is 21 and completes their first year, they will receive £11.44 per hour from 1 April 2024. This is an increase of nearly 60% and could discourage rural businesses from employing apprentices aged 20 or older during the first year of their apprenticeship.

The government will invest £20m in a social finance fund to support the development of community-led housing schemes over 10 years, subject to a business case. The CLA is seeking clarification on whether this is funding for Community Land Trusts, which the CLA supports as way to deliver housing.

The government has published a consultation on the proposed design of the new accelerated planning service, alongside new measures to constrain the use of extension of time agreements and identify local planning authorities who are using these excessively. The consultation closes on 1 May.

In addition, a pilot will be launched on using artificial intelligence to speed up the process of developing local plans.

The government also announced the launch of second round of the Local Nutrient Mitigation Fund. This aims to deliver 30,000 houses by 2030 in areas affected by high levels of nutrient pollution.

The proposed accelerated planning service is positive for large-scale, commercial developments but the CLA hopes this will not result in the prioritisation of these applications over applications for homes and development that will support the rural economy.

The CLA will be responding to the accelerated planning service consultation and will be seeking the views of members on Policy Committee to inform this response. While mechanisms to improve the planning system are welcome, the underlying issue of resource remains a concern.

Funding through the Local Nutrient Mitigation Fund is vital to help unlock housing development. However, it also needs to enable agricultural development, which is hindered by the nutrient neutrality issue across 74 local authority areas.

Personal representatives of an estate are currently required to pay the inheritance tax bill (or, in some cases, the first instalment or instalments) to HMRC before they are able to apply for a grant of representation. This can cause difficulties given that the grant is needed before most assets can be sold or accessed.

HMRC already has a procedure where, in exceptional circumstances, it will allow a ‘grant on credit’ to be issued before the payment of inheritance tax. To be allowed a grant on credit, the personal representatives need to demonstrate that they cannot raise all the funds required to pay the tax due and that they have made every practical effort to raise the money. At present, this means that they need to have attempted to raise the funds through short-term loans secured on their own assets or those of the estate, which can be expensive and difficult.

However, the government has announced that from 1 April 2024, personal representatives will no longer need to have attempted to obtain commercial loans to pay inheritance tax before applying to obtain a “grant on credit” from HMRC.

This is a welcome change and will be helpful to CLA members with substantial assets that do not qualify for inheritance tax reliefs but cannot be sold without a grant of representation (for example, a residential property letting business).

• VAT registration threshold - the compulsory VAT registration threshold will be increased to £90,000 (currently, £85,000) with effect from 1 April 2024. At the same time, the threshold for deregistration (the taxable turnover threshold at which a taxable person may apply to deregister for VAT) will be increased to £88,000 (from £83,000). These threshold increases are the first since 1 April 2017.
• The Empty Property Relief “reset period” will be extended from 6 to 13 weeks from 1 April 2024 in England. The government will also consult on a “general anti-avoidance rule” for business rates in England.
• Full expensing to lease assets - the government will shortly publish draft legislation for technical consultation to consider the potential extension of full expensing and 50% first-year allowances to leased plant and machinery when fiscal conditions allow. The full expensing is only available to companies for now.