Due to the effect of inflation and frozen reliefs, 19% more growers than forecast will face punitive inheritance tax charges in the first decade of the Government's new legislation, according to the latest calculations by the Central Association of Agricultural Valuers (CAAV).
Not only has the Government underestimated the number of growers who will be immediately affected by a factor of five, mainly by overlooking the number of claims only made under business property relief (BPR) and the true value of those claims, but an extra 19% on top of that will be caught by the charges as inflation erodes the reliefs.
"Our calculations point to the first decade of the proposed policy ending with 89,500 farming taxpayers liable for inheritance tax (IHT) on their farm assets," says Jeremy Moody, secretary and adviser to the CAAV. "The first 10 years alone would add some 14,500 (19%) to the CAAV's assessment of 75,000 affected farming taxpayers over a generation - simply because of inflation if there is no policy change. More would follow as each year goes by."
Jeremy Moody
The main IHT relief for all taxpayers, the nil rate band, has been frozen at £325,000 since 2009, and the Budget now freezes it to 2030 – 21 years.
"That gives no confidence that the £1m full relief for agricultural property relief (APR) and BPR will be protected against inflation," says Mr Moody. "Even more growers would therefore be caught than has been suggested."
While the nil rate band would be used first for personal assets, which from April 2027 will include unused pension funds, it measures how inflation brings people into tax. When full APR and BPR were introduced in 1992, the nil rate band of £140,000 was worth some 56 acres of typical farmland. The £325,000, frozen since 2009, is now worth 29 acres, protecting less of a farm that would now often be larger than it was then.
"Based on average annual inflation of 3% since 2009, it's easy to see how quickly more growers will fall into this punitive tax band."
CAAV
caav.org.uk