Autumn Budget 2025 and the impacts for agriculture

On 26 November, the Chancellor announced the Autumn Budget. The Government has clear fiscal rules and is committed to economic growth, with the cost of living, NHS waiting lists and cutting national debt as key priorities.

Although there have not been any hard-hitting tax rises as initially expected, there have been a number of smaller changes that will add up in terms of generating income.

It has been a difficult few years for agriculture, tackling difficult weather conditions, changing agricultural policy, rocketing input and interest costs, as well as tackling inflation.

While agriculture has not been a direct tax target in this budget, there have been several measures that could have an indirect impact on farm businesses and the rural economy.

Key points

• Income tax thresholds freeze extended until 2031
• Sugar tax extended to milk-based drinks such as milkshakes and coffees
• National Living Wage increases in April 2026
• Update to inheritance tax: £1m APR allowance can be transferred between spouses or civil partners

Income tax thresholds

The Chancellor has extended the freeze ON income tax thresholds until 2031. Although this is not a direct increase in income tax rates, it will mean more people are paying more tax.

The thresholds are not increasing with inflation, even though wages are rising with inflation and workers are getting pay increases, meaning more people will fall into higher tax brackets and pay more tax on their income.

The freeze came into place in 2021 under the previous government, with the freeze originally set to 2028.

Farmers who operate as sole traders or as partnerships may face higher effective tax burdens as thresholds remain frozen, reducing disposable income and reinvestment capacity. 

Sugar tax

The Health Secretary announced that the existing sugar tax, which mainly applies to fizzy drinks, will be extended to milk-based drinks such as milkshakes and milk-based coffees.

This is expected to raise £40–45m and is expected to come into place from 1 January 2028.

Alongside raising income, the sugar tax is intended to have health benefits across the population and subsequently reduce stress on the NHS.

Manufacturers may change recipes to reduce sugar and therefore avoid tax. The existing tax has seen a large reduction in the sugar contained in soft drinks.

The tax will be applied as 19.4p/l when there is 4.5-8g of sugar per 100ml, and 25.9p/l when there is over 8g of sugar per 100ml. The Government has said it will introduce a ‘lactose allowance’, which will account for the natural sugars within milk.

The dairy sector is in a challenging place at the moment, with falling prices and growing supplies. Therefore, anything which may reduce demand for dairy products, such as the sugar tax, is a risk for the sector.

Minimum wage increase

There has been a higher than inflation rise in the National Living Wage as a measure to ease cost of living pressures.

• Workers over 21: A rise of 4.1% to £12.71
• Workers between 18–20: A rise of 8.5% to £10.85

This is on top of an increase to wages and employers’ National Insurance contributions in April 2025, which adds to business costs where there are paid employees.

The increases from April are starting to make an impact on farming businesses as more costs are attributed to labour and employment, which will now continue into next year.

Property tax reform

Some of the most expensive properties in the country will be subject to higher taxes.

The ‘mansion tax’ will come into place in 2028. It is an annual charge of £2,500 for properties worth more than £2m, and £7,500 for properties worth more than £5m.

Inheritance tax

As expected, there was no U-turn on the inheritance tax changes announced in the 2024 budget. The only update made within the Autumn 2025 budget was that the £1m allowance for 100% rate of agricultural property relief will be transferable between spouses and civil partners.

Other announcements

• There have been changes to Individual Savings Accounts (ISA). Previously, there was an annual allowance of £20,000 tax free. This has now been changed slightly in that £8,000 of the total £20,000 annual allowance is for investing in a stocks and shares ISA. The remaining £12,000 is available for cash ISAs
• The Government is scrapping the energy company obligation (ECO) scheme, which could save the average household £150 on their energy bill
• The 5p fuel duty cut will continue until September 2026
• Electric cars will be subject to a tax of 3p per mile, and plug-in hybrid cars 1.5p per mile

What does this mean for agriculture?

Although this budget has not seen any hard-hitting tax changes, the freezing of income tax thresholds, increase to minimum wage, and the extension of the sugar tax will have impact across the agricultural sector.

This, alongside the announcements from last year's budget on IHT changes and increased employer national insurance contributions, as well as steeper than expected reductions in direct payments, will contribute to difficulties within the industry.

As discussed in previous budget analysis on IHT, it is time to start proactively planning now, understanding the details of your business and finding opportunities to build efficiency and resilience.

Going forward our sights are on the revamped Sustainable Farming Incentive (SFI) scheme in England which is expected to be announced in the first half of 2026, the launch of the Sustainable Farming Scheme in Wales.