The new inheritance tax policy could affect up to five times more farms than the Treasury initially said, according to new analysis.
The government said its plan to impose 20% inheritance tax on farms worth more than £1m will affect 500 farms in the 2026-2027 financial year, based on analysis of past claims.
However, the Central Association of Agricultural Valuers (CAAV) has looked at the numbers and found 2,500 farms could be affected each year.
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The group, which represents businesses across UK agriculture, found up to 75,000 individual farms over a generation – which they define as 30 years – could be affected by the tax.
Jeremy Moody, author of the report and secretary and adviser at CAAV, told Sky News the government figures had not taken into account farmers who only claim Business Property Relief (BPR).
Farmers protested last week, saying the tax would mean the end of many family farms because they would have to sell off land to pay it.
Environment Secretary Steve Reed had previously promised he would not change inheritance tax for farmers.
Many have said the government’s figures were incorrect and more than 500 family farms would be affected a year.
The National Farmers’ Union (NFU) said the real number is two thirds of farms of the UK’s 209,000 farms, while the Country Land and Business Association (CLA) said 70,000 farms would be affected.
But Mr Reed has insisted the figure is based on “raw data” and said the Treasury had taken into account all possible figures.
The Treasury said its figures came from data on farms that had claimed Agricultural Property Relief (APR), as well as those who claimed both APR and BPR – but not solely BPR.
Currently, to get 100% inheritance tax relief farmers have to claim APR for farmhouses, land and buildings, and BPR for machinery and livestock – but this can also be claimed for land and buildings.
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What’s the beef with farmers’ inheritance tax?
Agricultural Property Relief (APR) and Business Property Relief (BPR) are mechanisms farmers currently use to claim 100% inheritance tax relief.
Different aspects of farms come under the two schemes, with some aspects able to be claimed under either.
APR:
Farmhouses used by farmers
Buildings used for agricultural purposes such as grain storage or to house livestock
Land used for farming and growing as well as woodland to help farming, such as woodland shelter belts
BPR:
Machinery, such as tractors
Livestock
Farmshops
Holiday and industrial lets on farms
Buildings used for agricultural purposes
Land used for farming
Not all farms have to claim BPR
Mr Moody explained some farms have to have farmhouses to be close to their livestock, so must claim APR for the farmhouse and BPR for machinery.
But, not all have to claim APR as not every farm includes a farmhouse. That’s because some farmers, mostly those who grow crops, do not live on the property – so they can just claim BPR.
“The Treasury didn’t look at BPR claims sitting there on their own,” he told Sky News.
“Unless you’re trying to argue the value of a farmhouse, which these days can be quite high, it’s just convenient to claim BPR on the land and machinery.
“A landowner might place the farm under BPR purely for simplicity because whether you claimed under APR or BPR has never mattered before.
“If a family farm is structured as a company then they also would only claim BPR, which isn’t wrong to do.”
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How long is a generation?
Mr Moody added government figures fail to consider that farms are typically handed down every 30 years, for example from an 85-year-old who dies to their 55-year-old son or daughter.
“The government’s figures accept that the effect from introducing inheritance tax is over 75 years, they didn’t think about how long a generation is,” Mr Moody said.
Because of spousal inheritance tax relief, the government has said a couple would be able to pass on a farm worth up to £3m before paying any inheritance tax. They said as it is payable over 10 years it will not be a big hit – something farmers disagree with.
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A government spokesman told Sky News: “Our commitment to our farmers is steadfast – we have committed £5bn to the farming budget over two years, including more money than ever for sustainable food production, and we are developing a 25-year farming roadmap, focusing on how to make the sector more profitable in the decades to come.
“We have been clear since this change was announced that around 500 claims of Agricultural and Business Property Relief each year will be impacted – this is based off actual claims data – and even when inheritance tax does kick in, it is effectively at half the rate paid by others.
“It is not possible to accurately infer inheritance tax liability from farm net worth figures as there are different circumstances affecting each farm, such as who owns it, the nature of ownership, how many people own it and how affairs are planned.”
