New inheritance tax rules for farmers could be changed to make it easier for those 80 and over to hand down their farm without it incurring the tax, in what would be a partial climbdown by the government after a bruising row with farmers and a huge protest march in Westminster on Tuesday.
The Treasury is understood to be assessing the impact of changes, including amending gifting rules for over-80s so they can pass on their farm to their family without having to live for seven years after making the gift.
Officials are also understood to be assessing the impact of changes announced in the budget in October on active small- and medium-sized farms compared with smallholdings.
Labour has come under attack after Rachel Reeves announced in her budget last month that farmers who have a business worth more than £1m could be subject to 20% inheritance tax (IHT). Labour government had previously promised that no changes would be made to agricultural property relief (APR), which granted farmers an exemption from inheritance tax.
Farmers met the Treasury on Thursday and proposed that older farmers should be exempt from gifting rules which, under the plans laid out last month, would mean that if they died less than seven years after handing the family farm down to their relatives, they would have to pay a tax that farmers say could wipe their business out.
Labour has tried to target the policy at wealthy investors buying land to avoid IHT, who have been blamed for driving up land prices. However, many farmers complain that while they may be asset rich, they are cash poor, because farm incomes have plummeted because of cost inflation, poor harvests and fierce competition among retailers. They say many farmers take home less than the minimum wage.
Many farmers also point out that they have not paid into a private pension as they intend to live in the farmhouse and take an income from the farm – which they cannot do if they gift it to their children.
Treasury sources said the impact of changing gifting rules for those aged 80 and over was being examined, but added that the impact was difficult to determine as data on the farming population has generally put all those over 65 into one bracket.
Tom Bradshaw, president of the National Farmers’ Union, said this change would not go far enough: “The average age of death in the UK is around 80, so they should bring it down to 73 to allow them to use the seven-year gifting rule.
“If they are looking at how they create an exemption for the elderly members of the industry then the exemption should come in seven years before the average age of death. I would prefer an exemption before April 2026, when the rules come in, so you can make the transfer and don’t have to survive the seven years, but we have far better options on the table if they come out for consultation. We could come up with a policy that would answer the questions but be far better for the industry.”
Farmers have also argued that non-farmers are being treated generously, as people who have a country home and a paddock can currently claim APR as their asset is worth under £1m whereas those with a middle-sized farm are caught by the new tax.
Treasury sources confirmed that the impact of changes on active small- and medium-sized farms compared with smallholdings was also being assessed. This is because under the current regime people who buy a countryside home and do hobby farming avoid paying inheritance tax on their estates but many productive small-and medium-sized farms will be subject to the tax, as farming on small pieces of land is often unviable and productive farms need expensive machinery to function, which will now be caught under the new inheritance tax regime. The inheritance tax threshold for households which do not qualify for APR is £325,000.
Inheritance tax is normally charged at 40%. Labour has said farms worth £3m could end up being exempt because married couples are able to claim £1m each tax-free as well as a family home worth up to £1m.
Martin Williams, an arable farmer from Herefordshire and one of the organisers of Tuesday’s protest said: “We are grateful for the Treasury for looking into it, but it’s a shame the messaging has caused so much stress in the meantime. We understand the needs of public service investment but ask the government what their ambition for this tax is? We are asking for a continued dialogue with farmers.”
The environment secretary, Steve Reed, told the Country, Land and Business Association conference on Thursday that the government is “listening” to farmers.
He added: “And I’m going from this to a meeting with No 10 to discuss with them my thoughts on what we might need to do. I’m not pretending these decisions are easy. I know the pain people feel. Many other people tell me how difficult this is, of course, we’ll listen to try and understand how we can make that easier to bear.”
A Treasury spokesperson said: “We remain committed to fully implementing the policy and are not considering mitigations.”
