The months since the proposed changes to Inheritance Tax (IHT) were announced in the Autumn Budget have seen farmer protests across the country, tractors in Westminster and some intense lobbying from agricultural organisations.
With the Spring Statement on the 26th March being the next “fiscal event”, might we see some softening, or even reversal, of the proposals?
What were the Autumn Budget proposals?
As a reminder, the Autumn Budget announced the end of 100% IHT relief for all qualifying agricultural and business assets. At the moment, all qualifying assets can pass tax-free on death due to the twin reliefs of Agricultural Property Relief (APR) and Business Property Relief (BPR).
The Autumn Budget announced that, for deaths after 5 April 2026, this 100% relief would be restricted to the first £1m of qualifying assets per person, after that the relief would be restricted to 50%, giving an effective rate of IHT of 20% on these assets.
Whilst these changes will potentially impact every trading business in the country, it is the impact on the farming industry which has dominated the headlines, due largely to these businesses being typically asset-rich but cash-poor. This has led to the moniker of the “family farm tax”.
So is there any chance the proposals will be changed …. and if so, what are some of the potential changes which could be made?
Increasing the £1m limit
The debate rages about just how many farms will actually be impacted by the changes. The government originally said that they expected around 500 estates a year would be affected, whilst farmers’ groups claimed over 70,000 farms would be impacted. A study published at the end of January by the AHDB concluded that the proposed changes would affect 75% of farms over 50 hectares in England and Scotland.
Whatever the true number, one of the simplest ways of mitigating the effects would be to just increase the £1m limit …. but to what?
Phased introduction to help older farmers
Whilst many, in the government and beyond, have cited the ability to gift the farm or parts of the farm prior to death as a way to avoid the worst impact of the proposed changes, concern has been expressed regarding the impact on the older farmer, for whom this may not be an option.
To be fully effective for IHT, a gift needs to have been made seven years prior to death. With these changes being announced only 18 months prior to their planned introduction, this may deprive the older farmer of the time to structure their affairs.
So, might we see a more gradual introduction of the new rules or some exemptions for farmers over a certain age? The signs so far from the Treasury have not been encouraging.
The “clawback” option
This was the proposal from the NFU and other landowner organisations. It would see the full 100% IHT relief being maintained at the time of death, but with a clawback to charge IHT if the assets were to be later sold or if they were to be no longer used for a qualifying purpose.
Various alternatives have been discussed for the clawback period, from seven years to a taper over 10 years or even indefinitely.
This clawback option, however, did seem to have been roundly rejected by Treasury ministers at a meeting in February, but may it yet be revived?
An exemption for “working farms”
One of the stated aims of the proposals, aside from revenue raising, was to disincentivise the purchase of farmland by investors looking to reduce their IHT.
If that is the case, one way to achieve this would be a more targeted reform of APR, specifically the qualifying conditions around tenanted land, whilst leaving BPR relatively untouched.
The Liberal Democrats have recently been calling for a “working farm” exemption, and this would be one way of achieving that – so may their calls be answered?
Is a change to the proposals likely?
At the moment, you probably wouldn’t bet on it!
In his speech to the NFU conference at the end of February, the Environment Secretary Steve Reed didn’t sound ready to make concessions on IHT, focusing instead on the measures aimed at making the farming industry more profitable, resilient and sustainable.
If the Spring Statement is to announce any further tax changes, the indication so far is that these are likely to be revenue-raising measures …. but anything is possible.
In the meantime, planning for these proposals is hampered by there being, as yet, no draft legislation giving the full details.
There are, however, still things that can be done for those potentially affected. Where applicable, land ownership should be confirmed (is the true legal position as expected?), partnership and/or shareholder agreements reviewed, and it is never too early to start those succession conversations.
Most importantly, professional advice should be sought to determine to what extent your individual farming business is likely to be affected – it may not be quite as bad as it appears.
