Landowners across Wales are sounding the alarm over significant tax implications on their profits as a result of changes to farm inheritance laws. The Country Land and Business Association (CLA) has challenged assertions made by government ministers suggesting that the majority of farms will not be affected by the inheritance tax alterations proposed by Rachel Reeves. These changes have sparked concerns within the farming community and unions, with fears that they could have a severe impact on the viability of farm businesses.
Under the existing inheritance tax relief system, farmers can transfer their land and property to their families without incurring taxes, either during their lifetime or through their will. However, in the recent Budget announcement, the Chancellor revealed that the 100% relief for family farms would now be capped at the first £1 million of combined agricultural and business property. Any value exceeding this threshold would be subject to a 20% tax rate, rather than the standard 40% inheritance tax rate applied to other properties.
The CLA’s analysis indicates that small family farms could end up paying up to 159% of their profits in inheritance tax under the new regulations. For instance, a “typical” arable farm spanning 200 acres and generating a profit of £27,300 could face a hefty IHT liability of £435,000. This burden would require the farm to allocate over half of its annual profits to cover the tax bill if spread over a decade, potentially leading to the sale of significant portions of farmland by inheritors.
Amidst growing concerns, the National Farmers Union has also voiced apprehensions, estimating that around 75% of food production in the UK could fall within the scope of the proposed inheritance tax changes. This projection is based on the combination of the £1 million threshold for IHT relief for farms with business property relief, a departure from the current practice of claiming these reliefs separately. These developments have raised serious doubts among farmers and industry stakeholders about the future sustainability of farming enterprises.
Gavin Lane, the CLA’s deputy president, criticised the government for underestimating the impact of the reforms on rural businesses, highlighting the potential consequences for ordinary family farms. The government, however, maintains that only a minority of farmers, predominantly larger landowners, will be adversely affected by the adjustments. Downing Street has emphasised that the changes aim to address disparities in the distribution of agricultural property relief, which disproportionately benefits a small segment of claimants.
In response to the mounting outcry, the NFU is organising a mass lobby event in central London to urge MPs to reconsider the proposed changes. While the government insists that the vast majority of farmers will not be impacted, the farming community remains apprehensive about the potential repercussions of the inheritance tax reforms. As discussions continue between stakeholders and policymakers, the future of farm inheritance and the implications for agricultural sustainability remain subjects of contentious debate.
With uncertainties looming over the agricultural sector, calls for greater transparency and consultation between the government and industry representatives have escalated. As stakeholders navigate the implications of the inheritance tax changes, the need for a balanced approach that safeguards the interests of both farming families and the broader agricultural community remains paramount.