Farmers “impacted more” than landowners by inheritance tax changes
Working farmers will be impacted more than landowners by proposed changes to inheritance tax on agricultural property, says the Chartered Institute of Taxation (CIOT), which is warning that the changes are likely to lead to the break up of family businesses.
The government announced limitations for agricultural property relief and business property relief for inheritance tax at last October’s Budget. This includes a new allowance giving 100% relief to the combined value of £1m worth of qualifying property, after which inheritance tax will be charged at 20%. The changes are set to come into effect in April 2026.
Responding to an HMRC consultation, the CIOT warned that the changes were likely to hit farmers with equipment and livestock harder than those who just owned land which they let out. The Institute also said the proposals could result in less investment as businesses save money for future inheritance tax bills.
Danny Clifford, chair of the CIOT’s Private Client (UK) Committee, said: “Setting the allowance at such a low level has led to uncertainty and alarm in the business community. A regime that had been in place for some 40 years is being overturned at short notice. These proposals, whatever the intention may be, may well lead to the break-up of many viable family businesses and farms.
“A working farmer with equipment and livestock is likely to be impacted to a much greater extent than a passive investor who simply owns land for grazing or letting. If a farmer has to sell off some fields or livestock to meet an IHT liability the farm may no longer be a viable business. It is also very possible that businesses will retain cash to fund potential IHT liabilities – and will not invest in future expansion of the business, to the detriment of the wider economy.”
The Institute also questioned the purpose of the new policy, suggesting that it was unclear whether the government have an objective beyond simply revenue raising.
Danny Clifford explained: “These proposals add additional complexity to an already complex system. We question whether the greater compliance, and detailed valuations required from taxpayers and HMRC are justified by the amount of revenue expected to be raised – £520m by 2028-29 for agricultural property relief and business property relief combined.
“Although the stated policy purpose is to ‘better target the relief’, there is no indication of what the target is, so it is impossible to judge whether the government will achieve it. The operation of the proposals, simply capping the amount of relief available, suggests this is simply a money raising measure.”