As Rachel Reeves' second Budget starts to sink in, it is clear that, once again, there is relatively little in it to cheer the rural economy.
The freezing of personal allowances until 2030/31 will bring increasing numbers into the higher tax rates or indeed will bring many on low incomes into the tax system for the first time. The one ray of light was the tacit acceptance that the “family farm tax” announced in 2024 was poorly conceived, and perceived by many to be simply vindictive. It has now been acknowledged that making the £1m allowance transferable between spouses (to match other nil rate band reliefs) will do something to make the tax less unpalatable. In some limited circumstances it might make planning a bit easier (typically where the spouse will need all the farm income in future and it is impractical to pass assets to a child leaving the surviving parent without income).
That change aside, it is difficult to find anything which will give encouragement to the rural sector: those with long memories may see the new tax rules for rental and interest income as marking a return to the pre-1984 investment income surcharge, which levied a 15% additional tax charge on income above a deminimis level. It had previously been suggested that making rents subject to a special rate of NIC would have left pensioners largely unaffected, but the new special tax will probably hit that group of taxpayers particularly hard – and will probably be interpreted by some as yet another step in a progressive campaign to drive out the residential landlord.
The reduction in the cash ISA allowance, on the other hand, leaves pensioners with some small advantage, in that the £8,000 reduction in annual allowance only applies to those under 65.
For those in business, the increase in the living wage and minimum wage of between 4.1% and 8.5% will cause difficulties, not least because of the ratchet effect which they will exert to all pay scales. In a period of falling employment, it is hard to see how they will help youngsters into the job market.
In another blow of particular relevance to the rural taxpayer, who often needs to make significant journeys to work, the introduction of a 3p/mile levy on electric vehicles will also put pressure on budgets (as will the removal of the 5p fuel duty discount from next September).
Finally, there is the issue of the council tax surcharge for properties in bands F to H. It appears that this will not automatically give rise to a flat rate charge but, instead, there will be a “targeted valuation exercise” across those bands to identify properties over £2m, which will then attract an additional charge (payable by homeowners rather than occupiers) of between £2,500 and £7,500 per annum. The explanatory guidance promises “The government will also consult on a full set of reliefs and exemptions, as well as proposed rules for more complex ownership structures including companies, funds, trusts and partnerships. The consultation will also cover treatment of those who are required to live in a property as a condition of their job.”
Prior to the Budget, there was considerable speculation that the Chancellor would need to abandon her promises to keep tax rates unchanged so that the fiscal pain would be shared. What actually seems to have happened is retirees and rural taxpayers are bearing the brunt of the direct increases whilst the rest of the population will only see that slow creep of the stealth taxes into 2030/31.
Further details of the Budget announcements can be found here:
*the views expressed are the author's and not ICAEW's