Labour's farm tax estimate disputed

In a 6000-word paper, the CAAV state that the total number of businesses affected by the change will be close to 75,000 farms. On an annual basis the numbers hit according to the CAAV are over five times Labour's estimate of only 500 farms.

The CAAV states that the UK government overlooked a number of factors when assessing the impact of the decision to increase taxation. The organisation is critical of the government for failing to recognise the important role and scale of BPR, overlooking farmers who do not make APR claims, the effects of inflation, and not taking into account the interaction with spouse relief.

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Secretary and advisor of CAAV, Jeremy Moody said: “The UK government has suggested that the number of UK farming businesses affected by the Budget is 500 for 2026/27 alone, overlooking all those who might die in coming years. But this has not smelt right, and so this report is an endeavour to pull together a more comprehensive view better reflecting reality.

“Working from the available data and with judgments from experience, we assess that figure as up to 75,000 in a generation, before any effects from inflation – so the equivalent annual figure for 2026/27 would be 2500 taxpayers, not 500. Perhaps the essential point is that this reaches far wider than APR. That has been recognised by the government’s consideration of APR claimants with BPR claims, but this has not considered those making purely BPR claims and other issues.”

Number battle

The report finds that in the UK, around 70,000 farming businesses have assets of over 125 acres, which at typical land values puts these properties in line to be hit by the change.

However, the report goes on to remove companies not liable to Inheritance Tax but with shareholders potentially making BPR claims. It also omits solely tenanted businesses, outside APR subject to the changes bringing the value of a tenancy into tax.

DEFRA reports that 46% of farm businesses have one person holding financial and legal responsibility and 49% have two or more family members doing so.

Taking these percentages, the CAAV conclude that 27,600 sole owners and 66,150 multiple family owners could potentially be affected by the budget changes.

However, the CAAV points out that a significant number of those multiple owners would have a value below £1m, especially as partnerships vary as to whether land is a partnership asset and whether only some partners own land.

Taking all this into account and spreading the number affected over a 30-year generation, the CAAV considers that some 2000 a year would be liable, significantly more than the government’s estimate of 500 farms. They organisation goes ont he state that bringing in the changes to BPR would increase the number to 2500 per year.

The number looks to rise further if the additional value of machinery, livestock, and other necessities for an active farming business are included. So far, HMRC data has offered no basis to assess these.

IFS back government figures

Meanwhile, the Institute for Fiscal Studies (IFS), an independent economic research institute based in London, has broadly backed the government’s numbers.

In the IFS report the HMRC figures show that 1730 estates claimed agricultural relief in 2020/21, and £550m of inheritance tax was relieved under the rules, an average tax saving of over £300,000 per estate. The largest 37 businesses accounted for 22% of the total value of the tax savings worth £119m or £3.2m each.

The IFS states that out of the 1800 estates per year claiming agricultural relief, around 500, or 29%, could potentially pay more inheritance tax as a result of curtailing agricultural and business reliefs. However, they argue that figures do not account for any behavioural changes that might occur as a result of the Budget policy measures. The number of farming estates actually paying more tax could be much lower than 500 per year if, in response to these changes, some people change their behaviour to avoid inheritance tax.

That might happen if, for example, more farm-owning couples split the transfer of assets to the next generation across their two estates to take full advantage of both spouses’ allowances, or if there is increased gifting of assets more than seven years before death.

Tax in right direction

The conclusion of the report states: “There is room for reasonable disagreement about whether we should have an inheritance tax at all. But if we have this tax, it should apply equally across all types of assets.

"Inheritance tax relief for agricultural and business assets unfairly favours those whose wealth is held in these forms rather than others: those who inherit a multi-million-pound farm are wealthy, even if the farm yields little income and they choose not to monetise the asset.

"Around 3% of all estates requiring probate or confirmation have a net estate worth more than £1.5m, and around 1% of estates requiring probate or confirmation have a net estate worth more than £3m. “And the relief provides a tax incentive for land to be used for agriculture rather than more profitable but less tax-privileged purposes, and for agricultural property to be owned by those looking to pass on wealth to their heirs tax-efficiently rather than those who value ownership for other reasons.

"The changes set out in the Budget reduce but do not eliminate these effects.

“Some relatively simple tax planning will ensure that many farms worth considerably more than £2m will not be liable for tax. And it is important to remember that most of the inheritance tax payable will be on very valuable estates.

"Overall, this moves our inheritance tax in the right direction. We should treat similar assets similarly for the purposes of inheritance tax, or any other tax, unless there are very good reasons not to.

"It is not obvious that such reasons exist in this case, and if the concern is about food production or protection of the environment, then much better tools exist to support those activities.”