Changes to the agricultural property relief will have a “profound impact” on the farming community, Country Wealth principal and chartered financial planner, Chris Poynton, has argued.
In the Autumn Budget, the government announced its intention to make the inheritance tax system fairer by restricting the generosity of APR and business property relief for the wealthiest estates.
The government also confirmed it will extend the existing scope of agricultural property relief from April 6 2025 to land managed under an environmental agreement with, or on behalf of, the UK government, devolved governments, public bodies, local authorities, or approved responsible bodies.
Poynton explained that many farming businesses across the UK have relied on APR to ensure their farms can continue being passed down to future generations.
“This is essential to the longevity of farming businesses and supports the UK’s food security, reducing our need to import food by helping successful farms continue to be run by future generations,” he added.
However, he pointed out that, should this relief be removed or limited, the beneficiaries of farms over £1mn will need to raise “considerable capital” to pay inheritance tax.
This may be a difficult task as Poynton explained that most farmers are asset-rich and cash-poor, having previously inherited the land from their parents.
Therefore, the beneficiaries will have to take on significant debt to pay the tax or, most likely, sell the farm.
Poynton additionally stated that the proposed changes to APR have been “compounded” by the changes in the taxation of pension death benefits.
“Many farmers have paid into personal pensions for the last 30 years to support their retirement needs when they are no longer physically capable of working on the farm,” he explained.
“At this point, their children usually run the farm and draw most of the profits as a wage.
“The pension contributions will have been self-funded from the farming business profits, usually at great sacrifice to the investor.
“In addition to capping APR, the chancellor will ensure that the total value of personal pensions on death will become assessable for inheritance tax.
“This means that the beneficiaries of farming estates may have to pay inheritance tax on the farm and any residual pension pots.
“The impact of both taxes on farming communities is likely to have a profound long-term effect on the longevity of farming businesses across the UK.”
tom.dunstan@ft.com
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