Inheritance tax changes could be re-worked to be fair on farmers and a win for the Treasury

Heather Powell, Head of Property said:

The frustration between farmers and the Treasury continues to build over changes to Inheritance tax (IHT). Farmers feel that their arguments about the cost to their livelihoods are being ignored, but the Treasury is refusing to change their position.

However, it should be possible to re-work the changes to be fairer on farmers and still bring the Treasury much needed tax revenue. If IHT valuations of farms are based on the profits reported in the last 5 years, adjusted as for a trading company by deducting “proper” salaries for everyone working on the farm, adding back any costs that would not be incurred if run as a business, multiplied by a reasonable multiple for the industry. This approach is widely adopted when valuing family businesses.”

This could bring most family farms below the IHT/ Business Property Relief (BPR) threshold and give a very low base cost for those who inherit, which, if they decide to ‘sell up’ could be taxed at income tax rates depending on the nature of the sale, which could be as high as 45%.

Another issue is the valuation of the family home – the farmhouse. However, if this has an agricultural covenant, then the market value of the farmhouse will be greatly reduced as there are significant barriers to it being sold to an investment banker. This should reduce the value of the estate for IHT significantly, but sets a low base value of Capital Gains Tax (CGT) if sold on by the family on inheritanc

Heather added

The Government are insisting that the current proposals as they stand will only impact 500 estates a year and they will be pressing ahead with the proposed changes. Conversely, it has been estimated by the CLA (Country Land and Business Association) that up to 70,000 farms could be impacted including those as small as 100 acres. Clarity on why the Government believes that only 500 estates will be impacted could ease the minds of many farming families and is much needed.

If you would like to discuss any of the above and how it impacts you, please speak to your usual Blick Rothenberg contact or Heather Powell using the form below.