Inheritance Tax Rises: Implications for UK Farmers

IHT Changes for Farms

The 2024 Budget has introduced significant changes to inheritance tax (IHT) regulations, bringing a wave of concern across the UK farming community. At Douglas Green Consulting, we understand the critical nature of these changes and their potential implications on your farming business. Our objective is to provide a clear, impartial analysis of how these IHT rises are impacting UK farmers, the extent of their reach, and what they mean particularly for family farms.

Farmers' Reaction to the New IHT Rises

UK farmers have voiced significant concerns regarding the new IHT regulations introduced in the 2024 Budget. The central point of contention is the introduction of a cap on agricultural property relief at £1 million, coupled with a 20% inheritance tax on any value above this threshold. This change marks a shift from the previous policy, which allowed for 100% relief on agricultural property and business property, putting additional financial strain on farming enterprises.

The reaction among farmers has been notably strong, with many staging protests and voicing their opposition to the new rules. The farming community fears these changes will adversely affect their businesses, making it harder for family farming operations to be passed down through generations without incurring substantial financial liabilities. 

The Impact of IHT: How Many Farms Will Be Affected?

While the reaction has been significant, it's important to quantify the actual impact of these changes. The number of farms effected is a contentious subject

According to the Institute for Fiscal Studies (IFS), a "remarkably small number" of farms will be affected by the new IHT measures. Specifically, the changes are projected to impact approximately 462 farms nationwide per year*. Farming organisations dispute this, putting the number far higher, and from our experience working in the industry for many years we would say the change impacts far more than the IFS asserts. 

*This estimate is based on farms with values exceeding the £1 million threshold where the 20% IHT would apply. It's crucial to note, though, that while this may represent a small proportion of the overall farming community, the financial implications for those affected could be profound.

The Government say farms will have 10 years to pay any IHT due, but its important to consider the affordability of any tax payment. Farming profits and free cash are very low in relation to the assets they hold. Farmers fear the liability will force the sale of all or part of their farms.

IHT Implications for Farming families

The new IHT hike has particularly significant ramifications for farms of all sizes. Many family-run farms that over the threshold will now face added financial pressures due to the 20% tax on any value above this amount. This could pose substantial challenges for farms in securing their financial stability and managing succession planning.

The increased tax burden might necessitate difficult decisions about selling portions of the farm or other assets to meet their tax liabilities, which can in turn impact the farm's operational capacity and family legacy. For family farms, already operating on tight margins, this additional tax can undermine their long-term sustainability and growth. 

The change could potentially hit the tenanted sector, if landlords decide to sell land in advance of the changes being introduced.

Supporting Farm Businesses

The 2024 Budget’s new IHT rises introduce a significant shift for UK farmers, heralding both immediate reactions and long-term concerns. While the number of farms affected by these changes may appear relatively small, the financial burden is disproportionately felt by farms, which could face substantial challenges in maintaining their operations and legacy.

At Douglas Green Consulting, we are committed to providing expert, impartial advice to help our clients navigate these complex changes. Understanding how these new regulations affect your unique situation is crucial, and we're here to support your farm's success, sustainability, and growth in an evolving regulatory landscape.

For personalised advice and detailed planning tailored to your farm's specific needs, see our farm business advice.

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