Study reveals no link between inheritance tax measures and mass farm auction amongst families
The Centre for the Analysis of Taxation (CenTax) has put forth a proposal for targeted inheritance tax reforms aimed at addressing the perceived abuse of carve-outs by super-rich asset owners. The reforms aim to end the inheritance tax relief enjoyed by large farms and family businesses, a policy dating back to Margaret Thatcher's tenure as Prime Minister.
The proposed reforms, detailed in a report by CenTax, suggest introducing both an upper limit on Agricultural Property Relief/Business Property Relief (APR/BPR) claims and increasing the existing allowance threshold.
A Tiered Approach to Inheritance Tax Reforms
Under the proposed system, an upper limit (around £10 million) on APR/BPR claims would be implemented. Estates would receive:
- 100% relief up to the adjusted allowance,
- 50% relief for the value above the adjusted allowance but below the upper limit,
- No relief above the upper limit.
Additionally, the current £1 million allowance would be increased to a higher combined allowance (potentially up to £5 million) to better protect smaller family farms.
This tiered approach is designed to better protect smaller and owner-operated family farms while shifting most of the tax burden onto the largest and wealthiest estates, which are better positioned to pay or finance inheritance tax.
Protecting the Most Vulnerable in the Farming Community
The CenTax study acknowledges that owner-farmers and tenant farmers, who tend to be disproportionately affected under current plans, would still receive some protection. The recommended reforms would largely protect family farms but could be better targeted to avoid disadvantaging smaller family farming estates.
According to the report, approximately 480–600 farm estates per year would face additional tax under the current proposed reforms; many larger estates would bear the bulk of this increased tax burden. As many as 40 of the farms that cannot pay their inheritance tax bill will face a bill greater than 20% of their farm's overall income.
A Controversial Proposal
The proposed reforms have sparked uproar among farmers and the rural community, with fears of landowners needing to sell their farms to pay the bill or further financial distress for struggling farming businesses. However, the Centax report aims to alleviate these fears, stating that most smallholdings and family farms would not struggle to pay their bill without selling up.
The National Farmers Union has welcomed the Centax report's proposals, despite previously calling for a U-turn after the overhaul was announced. The Centax report is the first in-depth, independent study of the overhaul of inheritance tax for farms and family businesses.
The reforms were initiated by Chancellor Rachel Reeves, who tightened inheritance tax carve-outs for farms and family businesses in her maiden Budget. The National Farmers Union also noted that there are adjustments within the Centax report that appear to mitigate the impacts on the most vulnerable in the farming community and enable farms to invest in the future of food production with greater confidence.
In summary, CenTax advocates a structured relief system with a raised allowance and an upper claim limit to concentrate inheritance tax reforms more effectively on large farm estates, protecting smaller family farms and better targeting tax liabilities.
- The proposed inheritance tax reforms, as suggested by CenTax, aim to protect smaller family farms by implementing a tiered system that offers 100% relief up to a certain adjusted allowance, 50% relief for the value above the adjusted allowance but below a specified upper limit, and no relief above the upper limit.
- The proposed reforms also include an increase in the current £1 million allowance to potentially up to £5 million to better safeguard smaller family farming estates, while shifting the tax burden onto the largest and wealthiest estates.
