CLA modelling shows dire financial impact of IHT changes

Financial modelling on the proposed changes to UK farmland inheritance tax (IHT) suggests a typical 200-acre arable farm could be forced to sell 20% of its land solely to settle death duties.

The Country Land and Business Association (CLA) has commissioned modelling to shine a light on how removing Agricultural Property Relief (APR) on farm values upwards of £1m would affect family farms.

According to this, an 81ha (200-acre) farm owned by an individual would, at current values, have an IHT liability of £435,000.

See also: Defra minister plays down impact of IHT changes

If its annual profit averaged £27,300, spread over a 10-year period it would require the farm to allocate 159% of that profit each year simply to cover the tax bill.

To meet this financial obligation, successors could be compelled to sell 20% of their land, says the CLA.

A married couple could pass on their APR to the other partner, but even farms owned by two people will be severely affected, the modelling suggests.

For a 101ha (250-acre) arable farm owned by a couple, the IHT liability would be in the region of £267,000. With an expected annual profit of £34,130, that bill spread over a decade amounts to 78% of the farm’s profit each year.

Despite government assurances that there would be no impact on what it considers to be a small farm, the CLA says its analysis suggests otherwise.

Farms ‘under threat’

CLA deputy president Gavin Lane says requiring farmers to use their income to pay the IHT bill would threaten farm business viability and future investment.

“While they [the government] frame this as a tax on the wealthy, the reality is that ordinary family farms will be hit just as hard,” he says.

“Either the government isn’t being honest with the public about the true impact of these reforms, or they don’t understand the nature of rural businesses.

“I’d like to believe it is the latter and that they are prepared to listen to our input rather than continually trying to dismiss it.”

Defra secretary Steve Reed is expected to address farmers and rural business owners for the first time since the Budget at the CLA’s annual Rural Business Conference in London on Thursday 21 November.