Feelings are running high about the proposed change to inheritance tax (IHT) for farming families. At Harrisons, we are agricultural law experts, so please get in touch if you have any concerns. We’ll be happy to help.

In the Labour government’s autumn budget, reforms were announced to agricultural property relief (APR) and business property relief (BPR) from inheritance tax (IHT).

At the moment, APR and BPR are available at a rate of 100% or 50% (based on eligibility criteria) with no cap to the total amount of relief.

The intention is that there will be a cap of £1 million aggregate, meaning that the total relief for eligible agricultural and business property is £1 million.

After the first £1 million of eligible assets, there is a relief on 50% of the remainder of eligible assets the balance being chargeable to IHT at the usual rate of 40% thus giving an effective rate of 20% on those eligible assets. The tax can be payable in instalments over 10 years subject to the payment of interest.
 
The measures have already been debated in the House of Commons, however, many farmers are protesting this change which in their view jeopardises the traditional family farm.

Exceptions

Transfers between spouses and civil partners will continue to be exempt.

The nil rate band (NRB) will apply on top of the £1 million – that’s the amount of an estate that can be passed on free of IHT.

Whilst both of these reliefs (the NRB and the RNRB) are transferrable between spouses and civil partners if they are not utilised on the first death therefore totalling another possible £1 million, the first £1 million of eligible business or agricultural assets is not transferrable.

Transfers to individuals more than seven years before death will continue to fall outside the scope of IHT (the rate tapers down from three years after the transfer).

Rationale

The Government argued that the reforms would be “fairer” than the current scheme.

Daniel Zeichner, minister for food security and rural affairs, claimed: “[APR] has been used in some cases by wealthy landowners to avoid inheritance tax”.

Chancellor Rachel Reeves said 3/4 claims would be unaffected by the changes and that the measures would: “Ensure we continue to protect small family farms”.

The Resolution Foundation assessed that the changes: “Would only affect a small number of estates”.

Pushback

The Country Land and Business Association cites a figure of 70,000 UK farms potentially being affected at the point of inheritance.

Farmers argue that a farm may be a valuable asset but that profitability is low, so owning farmland doesn’t mean farmers are wealthy. 

Many are concerned that the next generation will be forced to break up the family farm, which threatens food prices, the British rural landscape, and long-term food security.

The National Farmers’ Union (NFU) has arranged a “mass lobby” on 19 November in central London. The procession starts opposite Downing Street and goes to Parliament Square, led by children on toy tractors to signify the devastating effect on the future of farming. 1,800 NFU members have registered their intention to attend.

There are also calls for the first-ever national farming strike.

What happens next

For more information, please give us a call.