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the government has weakened its planned changes to inheritance tax Thousands of people will be affected by this farmers From next April.
The so-called ‘tractor tax’, First announced a year ago, it will see significant changes to how agricultural and business property can be transferred.
However, the extent to which this applies has now been substantially extended by the government – up from £1 million to £2.5 million – after months of furious reaction to the changes.
Announcing the U-turn, Environment Secretary Emma Reynolds said: “Farmers are at the heart of our food security and environmental stewardship, and I am determined to work with them to secure a profitable future for British farming.
“We have listened closely to farmers across the country and we are making changes today to protect more ordinary family farms.”
This step comes after a government commissioned report Ministers warned British farmers are “bewildered and fearful” for the future of their industry, with many citing fears over the changes inheritance tax As a major concern.
thousands farmers Has taken part in a number of protests in central London, many of which saw tractors being driven to Parliament – Often against the guidance of local police.
Here’s everything you need to know about this issue:
What changes have taken place in agricultural tax?
Previously, agricultural businesses were eligible for 100 percent relief. inheritance tax On agricultural property and commercial property.
But the tax is now being levied on farms worth more than £2.5 million – increased from £1 million – with an effective tax rate of 20 per cent on estates above the threshold, rather than the usual 40 per cent rate for inheritance tax.
A relief of 50 per cent will also be applicable on qualifying assets above the new level.
This means that the actual limit before paying inheritance tax could be up to £5 million, once exemptions for each partner in the couple and agricultural property are taken into account.
Why were the changes brought about?
The government has said it has to make “difficult decisions” to close the billion-dollar fiscal deficit it inherited from the Conservatives, and it is targeting agricultural inheritance tax relief to make it fairer.
It said the data showed the wealthiest 7 per cent accounted for 40 per cent of the total value of farm property relief, which cost the fiscal £219 million.
But explaining the reasoning behind the updated limit, Ms Reynolds said: “It is absolutely right that larger properties contribute more, while we support the farms and trading businesses that are the backbone of Britain’s rural communities.”
How many farmers will be affected by the changes?
According to the Treasury, only 11 per cent of properties claiming Agricultural Property Relief (APR) were above the £2.5 million threshold in 2022/2023, suggesting that almost nine in ten farmers will no longer fall within the scope of the changes.
In comparison, 31 per cent of properties claiming an APR were above the £1 million threshold over the same period.
Under the changes the amount of estates now required to pay inheritance tax has reduced from around 530 to around 180 after the changes.
However, the National Farmers Union (NFU) says farm businesses are also separately eligible for business property relief, which can cover businesses as diverse as harvested grain and livestock, machinery and camping on a farmer’s farm.
Now the two have been combined, with a single allowance of £2.5 million before inheritance tax is imposed, which could mean more farms are within scope.
But the government has countered that just looking at property value does not mean a farm will be affected, as it depends on individual circumstances.
How have farmers reacted to the update?
One of the NFU’s major criticisms was that the ‘tractor tax’ was evidence of the government’s lack of understanding of how the agricultural industry works.
Union leaders argued that, while farms may have high nominal asset values – the value of their land and business assets – returns from farming are often very low, so farming families may not have the reserves to pay inheritance tax liabilities without selling assets.
NFU president Tom Bradshaw welcomed the new changes, saying: “I’m grateful that common sense prevailed and the Government listened.”
He added: “The substantive changes to APR and BPR included in the Finance Bill have resulted in the imposition of a dangerous and cruel tax, leaving the most elderly and vulnerable people and their families caught in the storm. The NFU and its members are standing strong for what we believe in.”
“From the beginning, the Government said it was trying to protect the family farm and the changes announced today bring this much closer to reality for many”.