Ministers ought to grant farmers an inheritance tax vacation to forestall unfair remedy below upcoming tax modifications, in response to the Institute for Fiscal Research (IFS).
The IFS has warned that the federal government’s proposed modifications to agricultural taxes danger treating some landowners unfairly and will affect meals safety if not mitigated appropriately. Final month, Chancellor Rachel Reeves introduced in her finances that farmers with companies value greater than £1 million may very well be subjected to a 20% inheritance tax, prompting tractor protests exterior Parliament.
Beforehand, the federal government had promised no modifications to agricultural property aid, which exempted farmers from inheritance tax. The IFS’s new evaluation concludes that whereas it’s largely truthful to deal with agricultural property like different taxable property, particular concerns are essential to keep away from unintended penalties.
David Sturrock, senior analysis economist on the IFS, said: “Current farm owners passing away in the next seven years (but after the new regime comes into force in April 2026) will not have had the opportunity to avoid inheritance tax by making lifetime gifts. If the government wished to give current farm owners the same opportunity to avoid inheritance tax as owners of other assets, it could, for example, make lifetime gifts of agricultural property made before a certain future date inheritance tax free, regardless of the timing of the death.”
Treasury officers are reportedly assessing mitigations to the coverage, together with amending gifting guidelines for over-80s to allow them to go on their farms while not having to dwell for seven years after making the reward.
Regardless of pressures, Chancellor Reeves is known to be holding agency, aiming to focus on rich traders shopping for land to keep away from inheritance tax—a observe blamed for driving up land costs. Labour insists the coverage is concentrated on equity and stopping tax avoidance.
Nevertheless, many farmers argue that whereas they could be asset-rich attributable to land possession, they’re typically cash-poor. Declining farm incomes, price inflation, poor harvests, and fierce competitors amongst retailers imply many farmers take dwelling lower than the minimal wage.
Tax professional Dan Neidle has carried out analysis suggesting the tax modifications could hit working farmers more durable than tax avoiders. He proposes equalising the inheritance tax to 40% however making it payable solely when the land is offered, thus avoiding affect on these wishing to go the household farm to kinfolk. Neidle additionally suggests a “clawback” mechanism the place inheritance tax aid is reclaimed if inherited farmland is offered inside a sure timeframe.
He additional recommends elevating the inheritance tax cap to about £20 million, so solely the biggest and most refined farm companies are affected.
Tim Farron, the Liberal Democrat setting spokesperson, commented: “The government hid behind the IFS to try and justify this disastrous policy. That very same organisation is now telling them that their own proposals need an overhaul.”
A Treasury spokesperson responded: “As the IFS has said, the existing rules for these reliefs are unfair and inefficient. We remain committed to fully implementing the policy and are not considering mitigations.”
