Rural areas overlooked in 2026 Budget
Government policies continue to stifle rural growth after no changes to inheritance tax reliefs announced, says CLA President
The unique challenges rural businesses face continue to be overlooked by the government, says CLA President Gavin Lane, following Chancellor John Healey’s maiden budget.
Despite repeated CLA calls to scrap the detrimental inheritance tax changes, no changes were announced in today’s budget.
Earlier today, the Office for Budget Responsibility’s assessment of the chancellor’s budget found that the forecast revenue from these changes is “particularly uncertain” given the behavioural response to these measures.
Elsewhere in the Budget, the Chancellor announced:
- An increase in tax rates on income from property by two percentage points
- An extension of the temporary reduction of red diesel tax duty until July 2027
- An increased threshold for small business rate relief for retail, leisure and hospitality businesses to £18,000
- A reduction in the lifetime limit for gains qualifying for Business Asset Disposal Relief from £1m to £500,000
- A new exemption from Biodiversity Net Gain for residential brownfield developments on sites up to 1.5 hectares
CLA President Gavin Lane said: “The Chancellor says he wants growth in every postcode, but once again, the challenges rural areas face have been overlooked.
There are too many policies that stifle growth and entrepreneurship in the countryside, and there is still an ignorance of the unique difficulty of running a rural business.
"We welcome the extension to the red diesel tax cut and the increase in the business rates threshold. However, at a time when 9 out of 10 CLA members are cancelling investment in their business, it is hard to see what in this Budget will change their mind."
Red diesel tax cut
The temporary reduction of 3.7p-per-litre in red diesel duty has been extended for a further six months, as has the 5p cut to the main fuel duty rate. Both of these temporary cuts in the duty rates are due to end on 1 July 2027. After that, the normal rate will apply again and be uprated in line with the retail prices index.
Members will be relieved that the government will not immediately increase the cost of fuel through duties. The cost of fuels over the next few months will be determined by market prices changes rather than increases in duty.
Tax rates on income from property
A two-percentage-point increase in the income tax rates applying to property and savings income from 6 April 2027 was announced in 2025. This year’s budget has announced a further two-percentage-point increase from the same date.
Taken together, the two announcements mean that the tax rates applying to property income from 6 April 2027 will be four percentage points higher than the rates that apply in the current tax year.
| Tax year 2026/27 | Tax year 2027/28 | |
|---|---|---|
| Basic rate | 20% | 24% |
| Higher rate | 40% | 44% |
| Additional rate | 45% | 49% |
This could have a significant impact on rural landlords and landowners receiving residential or commercial rental income (including holiday let income) as individuals or through a partnership.
The increase will not apply in the same way to rental profits arising within a company; these will continue to be subject to corporation tax. However, incorporation should not be viewed as a straightforward solution, as transferring property to a company may itself give rise to capital gains tax, stamp duty land tax and other commercial and tax consequences.
Business asset disposal relief
The lifetime limit for gains qualifying for Business Asset Disposal Relief (BADR) will be reduced from £1m to £500,000 for qualifying disposals made on or after 6 April 2027. The BADR tax rate will remain at 18%.
The reduction could adversely affect retiring farmers, partners and other rural business owners who sell or transfer their business, a partnership interest or shares in a qualifying trading company.
For an individual realising a qualifying gain of at least £1m who has not previously used any of their lifetime allowance, the reduction could increase the capital gains tax liability by up to £30,000.
Members contemplating retirement, succession or a business disposal should consider the timing of any proposed transaction and take professional advice before taking action.
Increased threshold for small business rate relief
From April 2027, the threshold for small business rate relief for retail, leisure and hospitality businesses has been increased from £12,000 to £18,000 (100%), tapered up to £21,000
Business rates are frozen for two years from April 2027, again for retail, leisure and hospitality businesses.
The increase in small business rate relief falls short of the £20,000 that the CLA asked for, and only aligns the threshold with inflation since it was last revised in 2017. However, it is a welcome increase.
The tapering band from £18,000 to £21,000 still remains too narrow so does not overcome the issuers of a cliff edge at revaluation.
The rates freeze for these sectors is good news, as it gives some certainty against any increases to business rates in the short term. However, many of these businesses have already seen an increase in rates this year at a time where operating conditions of many small businesses remains very challenging.
Those rural businesses that do not fall within the retail, leisure and hospitality definition (e.g. workspace) who will see no benefit. This is a missed opportunity to help the wider rural economy, some sectors of which suffers from the same pressures as retail, leisure and hospitality. We will continue to lobby for wider changes.
Biodiversity Net Gain (BNG) exemption for residential brownfield developments
New exemption from BNG for residential brownfield developments on sites up to 1.5ha. Some details are still to be announced, including the implementation timings and the proportion of land per site that will be considered ‘previously developed’ (and therefore allow the planning application to fall within this new exemption) - i.e. land where there is or was a permanent structure (excluding buildings last used for agriculture or forestry).
The CLA does not support any exemption for these sites because it will not solve the ongoing viability problem for brownfield residential development and risks undermining the off-site BNG market.
The proposed change is likely to exempt more development on smaller sites in urban areas than rural areas, and will therefore not aid members with development ambitions. However, the estimated cost to nature of this exemption could be ~£87m and will significantly impact the off-site market for BNG, which many CLA members are involved in or looking to go into.
The CLA continues to advocate for an alternative approach requiring residential brownfield sites to meet simpler BNG obligations through the delivery of less valuable units (such as grassland units) rather than fully exempting.
We will provide more detailed analysis on these and other announcements made in the Budget later this week in a Weekly News budget special.