I am not a tax lawyer, specialist agricultural accountant or land agent, so my advice to farming relatives and other farmers I know is to seek professional advice on the implications of the Government's changes in APR for their businesses. They have until 2026 to sort things out and in my view the Government should allow an extended period to sort out unresolved succession issues. Succession planning is often left far too late in farm businesses.
Many farms have diversified and that is a further complication as BPR comes into play as it does on the farm itself.
It has to be noted that the wealthiest landowners in the country have their farms already placed in trusts. There is no doubt, however, that speculators from outside farming have been buying up parcels of land as a hedge against inheritance tax.
Farm businesses still attract a preferential rate of 20 per cent payable over 10 years. The heirs of my relatively modest estate will have to pay 40 per cent and after six months the outstanding sum will attract 7.25 per cent tax. Probate cannot be secured in that period.
I think it was ill advised to make a further in the basic payment to farmers when the new environmental supports are largely not ready to be used. Defra has been hollowed out more than any other government department.
Arguments about the numbers
Tax lawyers have questioned Sir Keir Starmer’s claim that a
“typical family” farm will receive a £3mn exemption from inheritance tax,
calling it “misleading”, reports the Financial
Times. The prime minister has repeatedly used the number when defending the
controversial Budget decision to impose inheritance duties on agricultural
assets above £1mn, saying earlier this month that “the threshold is £3mn” in a
“typical family case”.
But lawyers argue that the government’s figure requires
farmers to meet complex conditions, including potentially splitting up a farm’s
ownership when one spouse dies. “It’s not necessarily that the £3mn figure
that’s been bandied about is wrong, it’s more that it’s misleading,” said Emma
Haley, legal director at law firm Boodle Hatfield. “The difficulty is there are
various traps that can limit the allowance that everyone has.”
The exemption is made up of £1mn of agricultural property
relief, which comes in from April 2026; a £325,000 allowance for all categories
of assets; and £175,000 for passing on a house to children or grandchildren.
This amounts to £1.5mn that can be passed by a spouse directly to their
children. Both partners would need to pass this on to reach a £3mn exemption.
However, if a farm is owned by one person or a couple that
is not married or in a civil partnership, the £3mn allowance cannot be reached.
The residential exemption is also reduced if either partner’s share of the farm
is worth more than £2mn, and is removed entirely at £2.35mn. This means that
for a couple to reach the £3mn allowance, the first spouse to die would have to
leave £1mn of their estate to someone other than their spouse to avoid the
value of the second spouse’s estate surpassing £2mn.
The result is that farm ownership would probably have to be
split up to qualify for the full relief. “On the first death, you’re going to
have to make sure you pass the estate to somebody else and they will then
become a joint owner with the spouse,” said Haley at Boodle Hatfield.
“It becomes very messy.” Camilla Wallace, senior
partner at Wedlake Bell, said the £3mn figure was “not likely to be realistic
when you drill down” and calculated that £2.65mn was a more likely amount for
larger farms to be able to claim.
A government spokesperson said: “Two people with farmland
can pass on up to £3mn without paying any inheritance tax. Our reform to
agricultural and business property relief will impact around 500 estates a
year.” “This is a fair and balanced approach which fixes the public services we
all rely on,” they added. The government has said the policy, which applies to
farms worth more than £1mn, would only apply to around a quarter of commercial
family farms.
But the National Farmers’ Union has said the true figure is
three quarters of farms. While most of the conversation about the relief
has been focused on farmers, the same will apply to business-owners as the
Budget changed the rules for business property relief (BPR) in the same way as
for agricultural property relief. Family farms often have to use both APR for
their land and BPR for their livestock and machinery. The Treasury estimated
that the changes to APR and BPR would raise a total £1.8bn by 2029-30.
Calculations by consultancy CBI Economics estimate that only £387mn of that
figure would be from APR.
