UK Raises Agricultural Inheritance Tax Threshold to £2.5M

The administration has said that the already diluted plans to increase the agricultural inheritance tax would not be altered.

Farm Inheritance Tax Plans Finalized

Emma Reynolds, the environment minister, was speaking at the Oxford Farming Conference on Thursday. Protesters tried to interrupt her address with a tractor demonstration that blew horns.

The government said last month that it will increase the threshold for a 20% tax on inherited agricultural assets from £1 million to £2.5 million.

Minister Responds to Farmers

“Who is all, I am afraid… it is the individuals in this room who have engaged with us constructively and relatively quietly who have had an effect on this process, not the folks blowing their horns,” Reynolds said to the conference in response to a question regarding more modifications.

After months of criticism over the initial intentions revealed in Chancellor Rachel Reeves’ first budget in 2024, the tax threshold increase was seen by many as a retreat.

Government Perspective on Threshold Increase

However, according to Reynolds, the government has been paying attention to farmers who “are not shy about coming out and giving you their thoughts” and has now “substantially raised” the tax threshold, which will take effect in April.

According to the government’s initial plans, inherited agricultural assets valued at more than £1 million would have been subject to a 20% inheritance tax rate, which would have raised an estimated £520 million a year by 2029.

Initial Goals of the Reform

The administration had claimed that the reform would prevent affluent investors from purchasing farmland as a tax loophole while safeguarding smaller farmers. But in December, it abandoned the initial plan to raise the threshold to £2.5 million.

The new policy, when combined with an exception that permits farmers to transfer assets to their spouses tax-free, enables a couple to transfer up to £5 million in qualified assets without having to pay taxes. Nonetheless, the battle to “reverse the policy in full” will continue, according to the Country Land and Business Association (CLA), which represents rural property and company owners in England and Wales.

Industry Reactions

The government’s “partial climbdown” in December, according to CLA president Gavin Lane, was a “welcome relief” but “was a further recognition that their changes were ill-thought out and severely detrimental.” According to Lane, the program is still “so horrible for the rural economy” as it is. The National Farmers’ Union (NFU) said that it would “fight for more modifications at the next political opportunity” and that it was still against the tax in theory.

“News of the adjustment to the inheritance tax threshold only two days before Christmas, and days after my conversation with the Prime Minister, has been a significant comfort for many farming families throughout the nation,” acknowledged President Tom Bradshaw. “The reform lowers the tax burden on a substantial number of family farms,” he said.

Adjustments to SFI and Environmental Programs

As she outlined changes to England’s premier environmental program, the Sustainable Agricultural Incentive (SFI), the environment minister also promised that there would be “no more abrupt, unexpected closures” of agricultural payment programs.

The SFI, which compensates farmers in England for “public goods” including maintaining hedgerows, wildflower strips, and insecticide-free farming, was abruptly shut down in March of last year due to the complete allocation of funds for the year. The NFU called the shutdown “another shattering blow to English farmers” at the time.

Background of SFI Challenges

Since then, there has been continuous ambiguity around the program, which is a crucial component of the Environmental Land Management Schemes (ELMS) that took the role of agricultural subsidies after Brexit.

Late last year, a government-commissioned assessment of agricultural profitability by former NFU president Baroness Minette Batters cautioned that the industry was “bewildered and afraid” due to changes in SFI payments and inheritance taxes. Reynolds acknowledged that “mistakes were made” about the payments in the past when outlining plans for what she called a “simpler, fairer and more stable” arrangement on Thursday.

Eligibility and Timeline for SFI

She said that small farmers under 50 hectares (120 acres) and those not already enrolled in a payment plan would be eligible to apply for the new program, which would open in June. All farms would be eligible for a second, broader application window starting in September. “Protecting the environmental underpinnings of farming is not distinct from profitability, it is crucial to it,” she told farmers at the conference, endorsing the general strategy of utilizing agricultural payments to pay for environmental advantages.

According to her, the government was proposing a ceiling on the amount of money a farm firm could get for SFI, reducing the number of various nature-friendly farming projects sponsored, and restricting the amount of land that could be placed into an activity. In order to properly address climate change and animal loss, the animal Trusts said that it is now “essential” that the farm payments budget for environmental initiatives “be greatly boosted”.

Frequently Asked Questions

1. What decisions has the government made on the inheritance tax on farms?

There will not be any further modifications to the inheritance tax proposals, the administration has stated. Originally intended to be £1 million, the tax threshold for inherited agricultural assets will now be £2.5 million.

2. How do agricultural couples pay the inheritance tax?

Many family farms now have a lower tax burden because of a spouse exemption that allows a pair to pass on up to £5 million in eligible agricultural assets tax-free.

3. What prompted the administration to increase the cutoff?

Farmers’ input and opposition pressure led to the threshold hike. While preventing affluent investors from using farmland as a tax dodge, the government sought to safeguard smaller farmers.

4. What modifications to the Sustainable Farming Incentive (SFI) are underway?

The structure of the SFI will be more straightforward and stable. June is the deadline for small farms under 50 hectares, while September is the deadline for all other farms. Payment ceilings, land restrictions, and fewer schemes are some possible changes.

5. What are farmers’ and organizations’ top concerns?

Organizations like the NFU and CLA continue to resist the tax, claiming it is detrimental to the rural economy. Farmers are especially worried about the continuous unpredictability of agricultural income and the abrupt termination of environmental reward programs.

In conclusion

In order to lessen the burden on family farms, the government has completed its farm inheritance tax plans, increasing the threshold while guaranteeing more stability and clarity in payments for environmental farming. Nonetheless, agricultural organizations persist in advocating for more changes, underscoring the industry’s persistent worries over equity and financial sustainability.

Disclaimer

This content is for informational purposes only and does not constitute financial or legal advice.