What are the inheritance tax changes for farmers and why are they angry about it?
Ministers have been warned in a government report that British farmers are “confused and frightened” about the future of their industry, with many citing fears over changes to inheritance tax as a key concern.
Industry leaders continue to protest the so-called ‘tractor tax’, which was first announced a year ago and has led to significant changes to the transfer of agricultural and commercial property.
Thousands of farmers took part in a series of protests in central London; Many of these saw tractors being driven into Parliament, often against the direction of local police.
The farm profitability report, prepared by former National Farmers’ Union (NFU) president Baroness Minette Batters, called for a “new deal for profitable farming” that “recognises the true cost of producing food and distributing it to the environment”.
Although changes to inheritance tax were not within the scope of Baroness Batters’ review, Batters said the issue was raised by almost all participants and raised “significant ongoing concerns” for some farmers about the sustainability of their businesses.
Here’s everything you need to know about the problem:
What are the changes in agricultural tax?
Previously, farming businesses were eligible for a 100 per cent reduction in inheritance tax on agricultural and commercial properties.
But the tax now applies to farms valued at more than £1 million, with an effective tax rate of 20 per cent applied to assets above the threshold, rather than the normal 40 per cent rate for inheritance tax.
The government says the real threshold before paying inheritance tax could be as much as £3 million, once exemptions are taken into account for each joint and farm property in the couple.
Why were the changes introduced?
The government has said “tough decisions” will have to be made to fill the £22bn fiscal gap inherited from the Conservatives and is targeting agricultural inheritance tax relief to make it fairer.
The figures showed that 7 per cent of the wealthiest estates accounted for 40 per cent of the total value of agricultural property relief, costing the Treasury £219 million.
How many farmers will be affected by the changes?
According to the Treasury, around 27 per cent of properties claiming agricultural property relief (APR) were above the £1 million threshold in 2021/2022; This means that almost three-quarters of farms will not be covered by the charges.
The Treasury said around 500 estates are expected to pay inheritance tax a year under the changes.
But the NFU says farm businesses also qualify separately for commercial property relief, which can cover a range of businesses such as harvested grain and livestock, machinery and camping on a farmer’s field.
The two have now been combined and a single allowance of £1 million has been made before inheritance tax is levied; This could mean more farms are covered.
The NFU points to figures from the Department for the Environment (Defra) showing that 66 per cent of farm businesses in England have a net worth of more than £1 million.
However, the government disputed this analysis, saying that looking only at asset value did not mean the farm would be affected, as it depends on individual circumstances.
Why do farmers say the changes are a problem?
According to the NFU, although the nominal asset value of farms is high (the value of land and business assets), returns from farming are often very low so farming families may not have the reserves to pay their inheritance tax liabilities without selling their assets.
NFU chief executive Tom Bradshaw said the change left older farmers in “the cruellest predicament” as they may not live another seven years to benefit from asset forgiveness exemptions, or they may not be able to transfer assets in accordance with the forgiveness exemption.
He also warned that the changes could undermine investment as farmers would be wary of increasing the balance sheet as they would be liable to pay inheritance tax.
There are also concerns that this could impact tenant farmers if landowners can no longer benefit from tax exemptions for farmed land.
Mr Bradshaw said there was a feeling among farmers that the government did not understand food production.
