The Tenant Farmers Association (TFA) has provided the Government with six easy steps to relieve the misery of its Inheritance Tax policy that will hit farms and estates from April next year.

MPs and Peers will be returning to their green and red benches this week and will soon debate and vote on the Finance Bill which is due to implement the Inheritance Tax changes announced by the Chancellor of the Exchequer in October 2024.

TFA Chief Executive, George Dunn, said: “It’s not too late for the Government to step back from the precipice. Whilst we recognise the need for change, what has been announced simply goes too far. We welcomed the report published over the summer from the Government supporting tax policy think tank CenTax which called for the Government to look for changes to extend protections for family farms whilst achieving the Government’s objectives. Since the October 2024 Budget, the TFA has argued consistently that the policy needed to be finessed rather than abandoned altogether and has proposed a number of reasonable amendments that do not undermine the policy objectives of the changes but work to protect family farms.”

“It is hugely frustrating though that despite many months of discussion and debate with the Government, it has chosen not to make any significant change to its proposals for reforms to Inheritance Tax Agricultural and Business Property Reliefs (APR and BPR). Its draft legislation published just before the summer recess of Parliament smacks of carrying on regardless. The Government must pause, reflect and think again. The TFA has provided six sensible steps that the Government could take to reduce the burden of these tax measures on hard-working family farms,” said Mr Dunn.

The six changes proposed by the TFA are:

1) To increase the combined APR and BPR threshold from £1 million to £2 million

“Raising the threshold to £2 million better reflects the average net worth of family farm businesses across the country. £1 million might sound like a lot of money but when you add together the value of tractors, machinery, livestock, crops in store and fixed assets you very quickly exceed the £1 million threshold. Raising it to £2 million, even if you had to put a ceiling on the overall relief as proposed by CenTax, would represent a fairer approach,” said Mr Dunn.

2) The new APR/BPR threshold should be transferable between spouses and civil partners

“Whilst business reliefs have not previously been freely transferable between spouses and civil partners, given the huge change about to be landed on farming families up and down the country who have structured ownership of farming assets for many years around the previous settled policy, it is right to do so now. Centax has also highlighted this change as one of the ways that the Government could relieve pressure on family farms,” said Mr Dunn.

3) There must be provision for elderly and terminally ill individuals to pass down business assets without paying tax

“It is simply inhumane to apply a new policy that will hit hardest the very elderly and the terminally ill who are unlikely to survive seven years beyond transferring their assets before they can be free of tax. The CenTax Report agrees these individuals are the most likely to be affected in the earliest years of the reform. There is a strong moral case for reasonable transitional measures to allow those most impacted by the potential cliff edge that will be placed in front of them to alter their course and plan accordingly. Existing tax advice has been to hold onto farm and other business assets until death to claim full relief. The elderly and infirm need to have time to adjust to the new arrangements,” said Mr Dunn.

4) Adjustments need to be made to the Inheritance Tax Residence Nil Rate band

“The Residence Nil Rate band begins to disappear once estates are valued at £2 million and is removed altogether for estates approaching £3 million of value. With the huge change to APR and BPR, this is something which now needs to be altered to be fair to taxpayers. The full relief should continue to be available to estates in excess of £2 million of value excluding the first £2 million of value in agricultural or business assets,” said Mr Dunn.

5) Agricultural landlords letting land and holdings on secure tenancy agreements must be shielded from having to pay tax

“For many years, the TFA has argued that the Government should amend the availability of APR to landlords letting land so that there is an encouragement to let for the longest terms. Those proposals continue to have relevance and, indeed, have acquired a new level of relevance in the context of the October 2024 Budget. The TFA proposes that the Government should allow the estates of landlords to add into the zero-rate band for Inheritance Tax the value of any agricultural land let to tenant farmers on secure tenancy agreements let under the Agricultural Holdings Act 1986 or those on Farm Business Tenancy (FBT) agreements let for 10 years or more without scheduled break clauses. Currently, only 7% of FBT agreements are let for 10 years or more. Incentivising longer term farm tenancy agreements would also sit well with wider Government policy on rural economic growth, farm resilience, food security and the provision of public goods including in respect of environmental management and carbon
sequestration and storage,” said Mr Dunn.

6) Instead of targeting Inheritance Tax reliefs the Government should look at making changes to Capital Gains Tax relief

“In the context of the declared objective of the Government in making changes to the Inheritance Tax regime which was to target wealthy individuals who are buying agricultural land to avoid tax, the Inheritance Tax lever is the wrong one to have been pulled. The abolition or significant curtailment of Capital Gains Tax Business Assets Rollover Relief would have been a more appropriate lever to pull to diminish the incentive for wealthy individuals to purchase land in a way to avoid tax – again something which the TFA has argued for many years. That would also have the advantage of imposing a tax when there is cash in the system rather than on illiquid assets on death,” said Mr Dunn.

The TFA continues to hope that the Government will bring forward its own amendments to its draft legislation before it is introduced as a Bill to Parliament. However, the TFA will also be drafting potential amendments for MPs and Peers to table and debate as the Finance Bill goes through its Parliamentary stages.