A new report from the Centre for the Analysis of Taxation (CenTax) has suggested that landowners will be less likely to be impacted by the controversial inheritance tax (IHT) reforms than working farmers.
It estimates that around 30% of farm estates will be impacted by the reform, potentially comprising family farms valued at less than £5m. The analysis also found that 80% of revenue from farm estates comes from 34% of impacted estates worth more than £5m, while less than 1% of additional tax revenue comes from the 11% of impacted farm estates valued at less than £2m.
CenTax states that landowners would be less likely to be impacted by the reform, representing 64% of all farm estates but 42% of the impacted farm estates. Owner-farmers represent just 17% of all farm estates, but 37% of those that would be impacted by the reform.
86% of the impacted estates would be able to pay their entire IHT bill out of non-farm assets, but this would leave 70 estates each year that could not, and of these, around 40 would face a residual bill greater than 20% of the farm income (after tax and depreciation) if paid in ten-year annual instalments.
CenTax concludes the report with two suggestions to better target IHT reforms, while still raising at least the same amount of revenue. These are:
- A ‘minimum share rule’ that would remove relief for passive investors in farmland and other business assets, funding an extension of 100% relief for farmers and other business owners to £5 million per estate.
- Alternatively, an ‘upper limit on relief’ that would cap relief at the first £10 million of claim, funding an increase in the allowance for 100% relief to £2 million per estate.
Dr Andy Summers, director at CenTax and associate professor at London School of Economics & Political Science, said: “Our analysis shows that the Government’s reform largely protects family farms whilst limiting claims by the wealthiest estates. But the relief could be better targeted to reduce its use for tax planning and further extend protection for businesses, including farms.”
Industry response
The NFU has praised the report, stating that it offers the chance for ministers to address ‘unfairness and affordability’.
Tom Bradshaw, president, stated: “We welcome this detailed report by CenTax which recognises that working farms will be disproportionately affected by this tax. This is not a fair and balanced approach to reform and does little to counter those who seek to shelter wealth from inheritance tax by simply investing in farmland.
“There are interesting adjustments within the report that appear to mitigate the impacts on the most vulnerable in our community and enable farms to invest in the future of food production with greater confidence.
“We think this new independent analysis presents a positive and timely opportunity ahead of the Finance Bill for fresh conversations with government and officials that would allow us all to work together to address issues of fairness and affordability within the proposals. The NFU urges government to grasp this opportunity.”
