Budget blows final straw for some farmers

IHT concern for farmers | Image'in - stock.adobe.com

When the Chancellor announced the end of 100% Agricultural Property Relief (APR) and Business Property Relief (BPR) a month ago, I warned that this would affect smaller active farms in particular, leading to consolidation in the sector and changes across rural Britain.

Tom Ham | Supplied

The weeks since have produced a circus: government departments appear to hold conflicting data on who will pay the tax, farmers from Perthshire to the West Country converged on Westminster in protest, Jeremy Clarkson said he actually didn’t buy Diddly Squat just to pay diddly squat, and the environment minister briefly dispensed financial advice to a farmer in a Defra corridor. Order, and confidence, must be restored.

To recap, the budget announced that APR and BPR, inheritance tax reliefs set at a rate of 100 per cent since 1992, would be reduced to 50 per cent on amounts above £1 million from April 6, 2026. This means that, after the usual nil-rate-band allowances have been applied, inheritance tax (IHT) will be due at an effective rate of 20% on combined agricultural and business assets of more than £1m.

The measure was neither trailed nor tested by the government ahead of its October 30 announcement, indeed Labour had denied that APR/BPR would be altered in the lead-up. Small wonder, then, that it was met with shock and real fear by farmers. For many, this is the final straw amidst a variety of longstanding difficulties: price-gouging by supermarkets, the upheaval of Brexit, changes to subsidies, and a feeling of betrayal and lack of understanding from politicians and the country at large. This is the background to the protest.

The measure upends more than a generation of succession planning and some families may have little room for manoeuvre. No expert consultation, technical or otherwise, has been set up on this measure, so it is being fought out in the media and on the street. The Treasury’s estimate of the number of farms that will pay the tax is based solely on APR claims, neglecting the fact that BPR is often used on a farm’s non-agricultural assets. Rolling the two together into a combined allowance drags more farms into IHT liability.

A key question is, who is the government targeting here? Does this measure aim to make our tax system fairer by bringing estates of a certain size within the scope of inheritance tax, placing the burden on those with the broadest shoulders? If so, it appears to be a blunt instrument. It ignores the history of APR/BPR which was introduced in recognition of the fact that farming is a historically low profit but important enterprise.

If the measure is to clamp down on the rise in people who buy land solely to avoid inheritance tax rather than for agricultural purposes, then does it deliver without undue collateral damage?

And so we come to Steve Reed suggesting that a farmer make a lifetime transfer of his farm. This fundamental tenet of estate planning remains an option, of course, but it carries risks and conditions. Anyone making the transfer will need to pay rent to live on transferred property. This does little for elderly farmers, those who will assume most risk in the seven-year transfer window.

Thankfully, tax and planning professionals are better placed to advise on specific circumstances. If farmers have no planning in place and have been reliant only on APR/BPR, then they can and must act. From April 2026, a farm worth £3m with no other assets will incur an IHT bill of at least £140,000 with no planning. On a farm worth £5m, this rises to £800,000 with no planning. These cash amounts are payable over 10 years interest free, but the cash must either be found from profits or from selling land.

In each case, this liability could be reduced to zero by taking advantage of spousal allowances and placing assets in trust, depending on individual circumstances. On spousal transfer, it should also be noted that unused portions of the £1m allowance can’t be transferred between spouses, as is the case with the nil rate band and residential nil-rate band.

Lucy Crow, Director and Head of Agricultural Business at Henderson Loggie Accountants, says ‘Our clients are justifiably concerned by these changes and what they will need to do to ensure their farms and businesses survive. Since the budget, we have begun reviewing plans for many farms and estates valued between £2m and £12m and believe in all cases, planning is vital to ensure full allowances are accessed. In the cases reviewed so far, if the advice is taken, the IHT is significantly reduced and in many cases can return to nil. Our clients need a team for this, not just accountants so we will be working closely with trusted solicitors and financial planners to ensure the optimum solutions are put in place’

As planners, we work closely with tax accountants and solicitors, to create the structures that put farmers and their farms on a surer footing however political winds blow. We provide the tools to allocate assets in as tax-efficient a manner as possible, while also modelling lifetime cashflow.

On this measure, the government has said there will be no mitigation. But earlier this week the IFS suggested a variety of practical measures that might be incorporated at the next stage to shield elderly farmers and address the allowance anomaly. The prime minister also met with Tom Bradshaw, NFU president, for a broader conversation about agricultural policy, the safeguarding of family farms, environmental land-use schemes and the matter of food security. This is some progress at least.

Find out more here