CenTax (Centre for the Analysis of Taxation) delivered the first impact assessment on the proposed changes to APR and BPR (agricultural property and business property relief).听
Its new report, , marks the first public impact assessment using HMRC data, looking at the government's planned reforms.听
The report has several key findings. Within the broad definition of 鈥榝arm estates鈥�, every year, 480 of these estates would pay additional IHT (inheritance tax) as a result of the proposed changes.
鈥淭his is not a fair and balanced approach to reform and does little to counter those who seek to shelter wealth from inheritance tax by simply investing in farmland.鈥�
NFU President Tom Bradshaw
When broken down, this shows that only 20% of non-farming landowners would pay more tax. Among owner-farmers, tenant farmers, and mixed tenure farmers, 50% would pay more tax. 听
Furthermore, of those farm estates which will not be impacted by the reforms, most of them earn less than 20% of their income from farming. CenTax suggests this shows that the government鈥檚 proposal provides a disproportionate benefit to landowners and diversified estates which engage in agriculture as only a peripheral activity. 听
Time for fresh conversations
NFU President Tom Bradshaw welcomed the detailed report and the recognition that working farms will be disproportionately affected by the family farm tax.
He said: 鈥淭his is not a fair and balanced approach to reform and does little to counter those who seek to shelter wealth from inheritance tax by simply investing in farmland.
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鈥淭here are interesting adjustments within the report that appear to mitigate the impacts on the most vulnerable in our community and enable farms to invest in the future of food production with greater confidence.听
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鈥淲e think this new independent analysis presents a positive and timely opportunity ahead of the Finance Bill for fresh conversations with government and officials that would allow us all to work together to address issues of fairness and affordability within the proposals. 皇家华人urges government to grasp this opportunity.鈥�
Why is this analysis important?
CenTax has unique access to HMRC inheritance tax data between 2018-2022. This is the same dataset that government analysts use for policy modelling and official IHT statistics. It enables CenTax to apply the government鈥檚 proposed changes to historic tax returns and measure the impact.
It has also enabled the impact of alternative approaches to be modelled. 听
The report focusses on 鈥榝arm estates鈥�. For tax purposes, an 鈥榚state鈥� is the property of the deceased. This is not the same as an estate in the colloquial sense of 鈥榣anded estate鈥�. 听
Within this report, the definition for 鈥榝arm estates鈥� encompasses working farmers, but also investors in farmland. Key results are broken down into owner farmers, tenant farmers, mixed tenure, and non-farming landowners.
Affordability
In its report, CenTax also measures the affordability of the government's proposal. It finds 86% of impacted 鈥榝arm estates鈥� could fund their IHT bill through the sale of non-farm assets. This includes non-farming landowners.
There are 70 estates per year which could not afford to pay the IHT bill, even through the sale of all of their non-farm assets. The remaining business would be forced to use future profits to pay the remaining tax over 10 years.听
The report finds that the age of death among impacted farm estates is higher than for the UK population as a whole. More than 80% of impacted farm estates belong to those aged 75 and above, compared with 68% of deaths in the UK population.
Alternatives
CenTax has agreed that the policy needs changes to deliver the government鈥檚 intentions and has proposed a number of amendments. These are:听
Minimum share rule: If APR and BPR qualifying assets make up more than 60% of the total value of the deceased鈥檚 individual net worth at death, they would have access to a higher combined allowance of 拢5m where no IHT is due. 50% relief would continue to apply above 拢5m. Those failing the 60% test would lose access to any reliefs. This aims to separate farmers from those who invest part of their portfolio in farmland. 听听
CenTax estimates this would raise 71% more tax revenue than government鈥檚 current proposal. 听
Upper limit on relief: This would apply 100% relief on the first 拢2m of APR and BPR qualifying assets, then 50% relief up to 拢10m. Any value over 拢10m would not have access to reliefs. This increase in the combined allowance from 拢1m to 拢2m is funded by removing relief on the wealthiest estates. 听听
CenTax estimates this would raise the same tax revenue as government鈥檚 current proposal. 听
Minimum share rule and an upper limit: This is a combination of the two measures. Again, where 60% or more of the net worth of the deceased is made up of APR and BPR assets, this would again raise the combined allowance to 拢5m. From 拢5m to 拢10m, 50% relief would apply, but all relief would be removed for the value over 拢10m. This again aims to separate farmers from investors, while also reducing the relief available to higher value estates. 听
CenTax estimates this could raise 99% more tax revenue than the government鈥檚 current proposal. 听
What next?
Before the proposed reforms to IHT come into force, a significant number of legislative steps need to take place. You can keep track of what will happen and when on our family farm tax timeline page.
