Welcome to Spring.
With the days getting longer, the weather improving and new life appearing all around it’s hard not to be optimistic at this time of year, despite all the challenges that we currently face.
We hope you find the articles in this quarters bulletin interesting and stimulating and that the natural optimism present at this of year eventually bears fruit.
Big Farm Debate Summary
EQ was proud to sponsor Scottish Farmer’s “Big Farm Debate” recently – an event series that saw lively, honest discussions on the challenges and opportunities shaping Scottish agriculture today. EQ partner Robert Young was right at the heart of it all, bringing his extensive experience and insights to three packed events held in Stirling, Ayr, and Huntly.
Speaking from the panel, Robert reflected “I had the honour of sitting on the professionals panel for all three of the ‘Big Farm Debate’. The events were packed with forward-thinking farmers, there to hear about the impact of Labour’s October budget and the importance of a robust succession plan as a result.”
While the road ahead may be challenging for many farm businesses, opportunities abound for those willing to plan strategically and lean on professional advice.
A key takeaway from Robert’s participation was the unwavering resilience of the farming community. Despite challenges – from budget impacts to changing industry dynamics – farmers remain among the most resourceful business owners in Scotland. With the right professional support, as Robert noted, there is every opportunity not just to survive these changes but to thrive.
As the evenings drew to a close, with a dynamic panel discussion led by The Scottish Farmer’s editor, John Sleigh, it became clear that events like these are essential. They offer a platform for open dialogue, expert insights, and community engagement, all of which
are crucial as we shape the future of farming in Scotland. At its core, the Big Farm Debate is more than just a series of discussions; it’s a forum where no topic is off-limits. Experts and farmers alike engaged in discussions covering inheritance tax, succession planning,
and the future of Scottish farming. The event fostered a strong sense of community, with farmers sharing experiences, concerns, and even a few laughs over the issues that affect them daily. It was a chance to connect, learn, and collectively navigate the evolving agricultural landscape. At EQ, we are committed to supporting our partners and the broader agricultural community through these pivotal conversations. The Big Farm Debate has once again underscored that with collaboration and strategic planning, the future of Scottish farming is in safe hands.
Sector Focus – Beef
The beef sector is currently enjoying a boom, with finished cattle prices having increased by c. 27% over the past year. Deadweight cattle prices are now well north of 600p/kg DW, meaning that a typical 400kg carcass is worth c. £2,500, up by approximately £500 on the year.
At the farm level, a breeder/finisher producing a 100 head of finished cattle per year, should see sales increase by c. £50k, with no material increase in costs, meaning that the price rise experienced should drop straight to the bottom line. Cull cow prices have seen even larger increases, with cull cow prices up by c. 38% year on year, with well fleshed cull cows now making over £2,000/hd. Of course, continuing producers will have to pay more for replacements so the impact here on net profitability may not be as great. The price rise has been largely attributed to a tightening supply due to the long-term decline in beef cow numbers. In 2014 Scotland had 436,526 beef cows, but this had dropped to 382,558 by 2024, representing a 12.36% decline or 54,000 cows over a decade. High quality protein diets are also back in fashion and the UK’s population continues to increase. These two factors will have put a solid floor under demand. Processors will also have high fixed operating costs and will be more inclined to bid up prices to maintain throughput and plant viability as cattle numbers shrink. We would make the following observations on the situation.
- In the absence of imports supply is likely to remain tight for some time given the long-term nature of beef production and the difficulty of dialling up supply in the short term. Conception to slaughter takes over two years and it will take over 4 years for any replacement cows conceived today to start producing offspring that will enter the food chain. Greater retention of heifers for breeding now could also reduce supply in the short term.
- There is also unlikely to be a rush of new entrants into beef production given the amount that would have to be invested in buildings and the scarcity labour with the required skills. In the short term at least, any new entrant would just be taking over a herd from a producer exiting the sector, so there would be no net increase in production.
- Increased profitability will lead to increased tax liabilities, so some thought will need to be given as to how this will be managed. The level of taxable income is already likely to be higher over the next 4 years (for sole trades and partnerships) due to the spreading of additional profits arising from basis period reform in 2023/24.
- Increased profitability should provide committed beef producers with the cash to reinvest in their business and or make additional investments off farm such as pension contributions. This may help mitigate the higher tax liabilities, with some forms of expenditure being more effective than others.
- The beef price will reach a ceiling since further price rises are likely to encourage consumers to switch to other meats. Relatively low grain prices will keep pork and poultry very competitive.
- Higher finished prices are now reflected in higher store cattle prices making finishers vulnerable to any unexpected reversal in the finished cattle price. Our advice to finishers would be to do your costings very carefully. What would happen to your margin if say the finished price dropped by 5-10% from current levels? Make sure you leave yourself a margin of safety.
- The capital tied up in a beef finishing enterprise has also increased dramatically. A producer
with 500 head of finishing cattle could easily have over £1m tied up in working capital. Those reliant on borrowed funds would be well advised to review their overdraft facility to ensure that their existing facility is still appropriate. An extension may well be required if you are looking to stock up on store cattle this spring. - The current high prices for breeding stock could provide a window of opportunity for those who were already planning to either retire or exit the sector.
With strong demand and rising prices, the beef sector is showing greater signs of optimism than it has for some time. The attractive fundamentals should provide well structured, technically efficient producers operating at scale the opportunity to make some serious money.
Base rate cut to 4.5%
The Bank of England cut the base rate by a further 0.25% to 4.5% on 6th February, the third successive cut from the recent peak of 5.25%, providing welcome relief for those with variable rate borrowing. Speculation is now turning to whether there will be further reductions over the remainder of 2025, with some commentators forecasting a base rate of 3.75% by the year end. With Retail Price Index running at 3.6% to January 2025 this may appear optimistic but there are two obvious factors that might give rate setters a degree of wiggle room. Firstly, the National Insurance (NI) increase scheduled for April may have a deflationary impact as employers cut back on recruitment and curtail pay increases to offset the additional employers NI. Secondly, the Pound has been having a decent run against the USD over recent months, rising from a January low of $1.22 to around $1.29 today, thereby helping to keep down the price of imported goods. Given all geopolitical uncertainty, lots of unexpected events can of course happen over the coming months, given all geopolitical uncertainties, but further interest rates cuts may just be on the horizon.
Holiday over for FHLs
The start of the new tax year will mark the end of Furnished Holiday Let (FHL) tax regime and going forward FHLs will be treated in the same way as normal let residential property for tax. We have covered the changes in detail in previous articles but thought it useful to provide readers with a reminder of the main changes that are about to come in.
These are as follows:
• No capital allowances, with tax relief only given for the replacement of domestic items, not the initial purchase.
• Tax relief for interest costs restricted to 20% and not at the taxpayer’s marginal rate.
• No reduced rate of Capital Gains Tax (CGT) via Business Asset Disposal Relief. Full CGT rate of 24% will apply.
• Gift holdover relief no longer available on the gifting of properties to the next generation. CGT will now apply to any gifts apart from spousal transfers.
• FHL profits no longer treated as net relevant earnings for pension contributions.
• CGT Rollover Relief no longer available from or into FHL properties.
Those running FHL businesses would be well advised to consider how these changes will impact their current business model and longer-term plans.
Rise in Employers NIC
Chancellor Rachel Reeves announced in her Autumn budget that an increase to Employers’ National Insurance Contributions (NICs) rate was to hit home with effect from 6 April 2025. The increase would see a rise in contributions from 13.8% to 15%. This is expected to have a significant impact on the agricultural sector where many businesses rely heavily on seasonal and low-wage workers. An increase in the Employment Allowance from £5,000 to £10,500, which will also come into effect from 6 April 2025, will offer some relief, especially for smaller farming operations. However, larger farms with higher employment needs may still face substantial cost burdens.
Speak to your EQ contact to discuss the impact of the employer’s NICs and possible steps to mitigate the increase.
It’s Show Time
Spring typically sees the beginning of a busy period for our EQ Agriculture team. As well as meeting clients on farm to deal with their service requirements we will also be out and about supporting various sector events over the course of the year. If you are planning to attend any of the following shows, please look out for us:
Fife Show 24 MAY
BeefTech 28 MAY
North Sheep 04 JUN
Angus Show 07 JUN
Royal Highland Show 19-22 JUN
Scottish Game Fair 04-06 JUL
Skelton Show 05 JUL
Arable Scotland TBC
Kirriemuir Show 19 JUL
Penrith Show 19 JUL
Border Union Show 25-26 JUL
Perth Show 01-02 AUG
Turriff Show 03-04 AUG
Black Isle Show 07 AUG
Potatoes in Practice, Balruddery Farm, 07 AUG
Agriscot, Ingliston 19 NOV
We look forward to seeing you all there!
Understanding the Impact of Changes on Inheritance Tax for Farmers
As we all know last year’s budget changes have significantly altered inheritance tax (IHT) planning for farmers. Previously, Agricultural Property Relief (APR) and Business Property Relief (BPR) allowed farm assets to be passed on largely tax-free. However, these reliefs are now capped at a joint allowance of £1 million per individual, with APR restricted to 50% relief. Additionally, pensions and AIM stock are now fully chargeable to IHT, meaning more estates will face tax liabilities. We have prepared a quick call to action of steps all landowners should be taking now;
- Establish who owns all of the land and assets. This process will unearth some surprises and potentially some challenges, all of which are best known now. Once deeds and historic information is dug out, it is surprising how often the assumed ownership is in fact wrong.
- Identify areas of land which have security or borrowing restrictions.
- Quantify your IHT burden correctly, including all business and farming assets, such as machinery and livestock, to ensure you are armed with the facts.
- Speak to the younger generations and find out what everyone’s expectations, wants and needs are.
To mitigate these tax changes, farmers should take proactive steps. Lifetime giving is of course the simplest option for gifting farmland early, as the seven-year rule can exempt these gifts from IHT. However, non-farm assets, such as cottages, may trigger capital gains tax (CGT) upon transfer. In addition, Stamp Duty may well be payable if gifts of land and buildings is done without full consideration of where security is held. Over and above the numbers some families are nervous about gifting due to the potential of future divorce and family feuds. With these new rules in place, farmers must review their succession plans. Understanding ownership structures, assessing financial accounts, and ensuring wills reflect these tax changes are essential steps. Seeking expert advice from an agricultural tax specialist can help secure the best outcome and prevent unnecessary financial strain on future generations. If you have concerns about how these changes impact your farm, reach out for tailored professional guidance.
Cereals 2025
Our Agriculture team is planned to be represented at Cereals 2025, in conjunction with our fellow members of the Sumer group. Set to take place at Heath Farm, Lincolnshire on 11th – 12th June, the event will offer a unique opportunity for arable farmers, agronomists, and industry professionals to explore the latest technology in the marketplace. The event opens at 9am on both days, with online advanced pricing at £15, and on the day entry at £20. We look forward to seeing you there.
