Treasury Rejects Proposal to Ease Farm Inheritance Tax Adjustments

An attempt by the department for rural affairs to mitigate modifications to inheritance tax for farms, potentially through exemptions for some older farmers, has been dismissed by the Treasury. The Treasury stated there would be no alterations or concessions to the policy, which will eliminate inheritance tax relief for certain farms. Starting in April 2026, farms valued over £1 million will face an effective inheritance tax rate of 20%, which is half of the standard 40% rate. BBC Newsnight understands that the Department for Environment, Food and Rural Affairs (Defra), the government body representing farmers’ interests, believes it was not adequately consulted regarding this change. The department received notification of the policy on the eve of its announcement in the Budget. The National Farmers’ Union (NFU) has labeled this initiative “disastrous,” with some farmers warning it could severely harm rural areas. Defra proposed softening the policy to grant exemptions to certain older individuals, possibly those exceeding 80 years of age. The policy’s implementation date of April 2026 implies that these individuals might lack sufficient time to utilize current regulations that allow for avoiding inheritance tax by transferring an asset seven years prior to death. However, the Treasury rejected this proposal, stating that it had adopted “a fair and balanced approach.” Since its establishment in 1984, agricultural property relief (APR) has historically provided an exemption from inheritance tax for small family farms, encompassing land utilized for cultivation or livestock, alongside farm structures, cottages, and residences. The Treasury indicated that 40% of APR had benefited “the 7% wealthiest claimants” and affirmed that it had “made a difficult decision to ensure the relief is fiscally sustainable.” This decision was presented amidst a context of “public services crumbling [and] a £22bn fiscal hole inherited from the previous government.” A spokesperson further commented, “Around 500 claims each year will be impacted and farm-owning couples can pass on up to £3m without paying any inheritance tax – this is a fair and balanced approach.” Disagreements exist within the government regarding this alteration. Certain ministers contend that it will primarily affect affluent farmers, noting that a couple fully utilizing their inheritance tax allowances can transfer a £3 million farm without incurring tax. Any inheritance tax liability on farms is payable over a decade. Conversely, other ministers are concerned that the chancellor risks damaging Labour’s relationship with rural communities in Britain, despite generating a comparatively modest sum of money. This modification is projected to yield approximately £560 million. Certain government sources have voiced apprehension that the chancellor is causing undue distress over an adjustment that, in relative terms, is not a significant revenue generator. There are fears that this change, which has been contentious among farmers since its disclosure, might become “totemic” in rural Britain. The NFU cautioned that it would “snatch away the next generation’s ability to carry on producing British food” and compel farmers to liquidate land holdings to cover the tax. A demonstration opposing the proposal is scheduled to take place in Whitehall next Tuesday. Furthermore, a disagreement exists concerning the data employed to compute these revisions. Farmers’ representatives have been informed by Defra that the statistics originate from the Treasury, not from their own department. Tom Bradshaw, president of the NFU, stated that Defra’s data indicated the changes would affect 66% of estates, whereas the Treasury reported the figure as 28%. Clive Bailey, founder of the Farming Forum, which is also arranging a protest in central London next week, remarked on Thursday that any modification to the new regulations “would be a step forward.” Mr. Bailey, an active farmer in Staffordshire, suggested that the proposed exemption ought to encompass individuals considerably younger than 80. He informed BBC Radio 4’s Today programme that, in contrast to the general populace, farming involves “a lot of people who should have retired already still working.” He characterized the inheritance regulations as “so poorly thought out.” He asserted that the operational cost of a sustainable farm surpassed £1 million, contending that the government should engage in discussions “with real family farmers or agricultural economists.” He added, “We’re not special, but the economic circumstances of farming are very different to other industries.” During a session on rural affairs in the Commons, Robbie Moore, the Conservative shadow environment minister, accused the government of “arrogance” and pressed ministers to release a comprehensive impact assessment of the modification. Environment minister Daniel Zeichner reaffirmed the government’s statistics, indicating that fewer than 500 farms annually would be impacted. He further stated that there were methods for the change to “be managed” and encouraged Conservatives to “join me in reassuring British farmers about their future.” Sir Jeremy Wright, another Conservative MP and former cabinet minister, inquired whether ministers had contemplated restricting inheritance tax exemptions to those who could demonstrate a farm had been under family ownership for “a certain number of years.” Zeichner responded that the matter was “complicated,” adding, “in future we will have further discussions.” Tim Farron, the Liberal Democrat environment spokesman, declared the tax increase would be a “disaster for family farms.” He urged, “Rather than blocking pleas from Defra to rethink, the chancellor must urgently meet with the farming community and NFU to better understand their heartfelt concerns and reverse the tax hike.” A Defra spokesperson commented: “With public services crumbling and a £22bn fiscal hole inherited from the previous government, we have made the difficult decision to reform Agricultural Property Relief in a balanced and fair way.“All ministers support the policy and it will not change.” Copyright 2024 BBC. 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