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British farmers They are “appalled and fearful” for the future of their industry, a government commissioned report has warned ministers, as many cite fear over changes inheritance tax As a major concern.
Industry leaders continue to protest The so-called ‘tractor tax’, which was first announced a year ago, saw significant changes to how agricultural and business property could be transferred.
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.
The Farm Profitability Report by former National Farmers Union (NFU) president Baroness Minette Batters calls for “a new deal for profitable farming” which “recognises the true cost of food production and delivery to the environment”.
while changes in inheritance tax Baroness Batters, who was not within the scope of the review, said this was raised by almost all respondents and has raised “significant concerns” for some farmers over the viability of their businesses.
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 per cent relief on inheritance tax on agricultural property and commercial property.
But farms worth more than £1 million are now being taxed, with an effective tax rate of 20 per cent on estates above the threshold instead of the usual 40 per cent rate for inheritance tax.
The government says the real limit could be up to £3 million before inheritance tax is paid, once exemptions for each partner in the couple and agricultural property are taken into account.
Why have the changes been brought about?
The Government has said it has to take “difficult decisions” to close the £22bn 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.
How many farmers will be affected by the changes?
According to the Treasury, almost 27 per cent of properties claiming Agricultural Property Relief (APR) were above the £1 million threshold in 2021/2022, suggesting that almost three-quarters of farms will not be covered by the charge.
The Treasury says around 500 estates a year are expected to pay inheritance tax under the changes.
However, the NFU says agricultural 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 £1 million allowance before inheritance tax is imposed, which could mean more farms are within scope.
The NFU points to Department for the Environment (Defra) figures which show that 66 per cent of farming businesses in England have a net worth of more than £1 million.
But the government has refuted that analysis, saying just looking at asset value does not mean farms will be affected, as it depends on individual circumstances.
Why do farmers say change is a problem?
According to the NFU, while farms may have a high nominal asset value – 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 said the change left elderly farmers in “the most brutal position”, as they may not live for another seven years to take advantage of the exemption for gifting assets, or to hand over assets in a manner eligible for the gift exemption.
He also warned that the changes could weaken investment as farmers would be wary of increasing their balance sheets because they would have to pay inheritance tax on it.
There are also concerns that if landowners do not get the benefit of tax exemption on cultivable land, it could impact tenant farmers.
Mr Bradshaw said there was a feeling among farmers that the government did not understand food production.