Farm tax – BBC Verify which figures are more reliable and why

Since the government announced new inheritance tax plans for farmers in last month’s Budget, there has been intense debate about how many people will be affected and how.

Many of the government’s claims have been made by farmers, and BBC Verify has examined some of the figures it relied on to try to determine the number of farms affected by the changes.

The debate centers on estimates given by farmers’ groups, including that the new tax could “destroy” up to 70,000 farms over time.

Our analysis found that the figure is somewhere closer to the figure given by the government – around 500 estates per year. That remains our assessment.

Farming groups said the changes were “built on bad data”. The government says it wants to to make the inheritance tax system fairer and prevent the rich from investing in land just to avoid taxes.

Here, we go through all the numbers and examine the claims and counter claims.

Under the government’s plans, from April 2026, inheritances of agricultural assets worth more than £1m, which were previously exempt, will be subject to 20% inheritance tax.

The Country Land and Business Association (CLA) have thought that the tax changes “could harm” 70,000 UK farms. This would represent approximately 33% of the UK’s 209,000 farms, as identified by the Department for Environment, Food & Rural Affairs (Defra).

CLA figures are not annual and, clearly, the farm will only be subject to inheritance tax if it continues, after death.

The government, in an attempt to assess the impact of its tax changes, instead of the new figures for the number of real claims for tax relief for agricultural estates.

At this point, it should be emphasized that an agricultural estate is not the same as land or a farm: “estate” is a legal term for the value of money, property and goods inherited by an individual at death. In this case, it is an estate that includes some agricultural land.

The chancellor, Rachel Reeves, has claimed up to 520 one-year heritage agricultural plantations “will be affected to some extent by this change”.

Environment Secretary Steve Reed said “three-quarters of farmers will not pay anything for the change”.

But farming groups continue to defy government figures, with the National Farmers’ Union (NFU) show another figure from Defra which said “it shows that only 34% of farms are under £1 million net worth”. This would suggest that around two-thirds of farms could be affected by the Budget tax changes.

NFU has also released the analysis he said shows that “around 75% of commercial family farms will exceed the £1 million threshold”.

Below, we look at the challenges in coming to a precise conclusion about how many are affected, and provide more details on which figures are more reliable – and explain why.

Farming groups have partly based their arguments against the tax changes on data from Defra’s Farm Business Survey, which shows the net worth of UK farms in 2022/23.

The figures show that 17% of UK farms have a net worth – the difference between assets and liabilities – between £1m and £1.49m. Another 49% of farms have a value of £1.5m and over.

This suggests that 66% of UK farms could be affected by the tax changes.

But there are some problems with this calculation, as the data from the Defra survey is not necessarily representative of the entire UK-wide farming sector.

The survey – which is based on a sample of just over 1,350 farms – says it is designed to be representative of only half of UK farms (rather than the rest of the UK) and also excludes low-profit farms. .

Moreover, Defra data shows estimates of individual farm values, but does not show ownership.

Multiple farms can be owned by one person who then lets them go to tenants. In England about 46% of agricultural holdings are leased in whole or in part to tenant farmers 2023 according to Defra data. If the owner of various farms seeks to pass on the farms or he dies, this will all appear in one estate in the inheritance tax relief claim.

The financial impact will be on that individual’s inheritance tax bill, not each farm.

A farm can also be jointly owned by many people. If, for example, five people own a £5m farm, they can each pay a share of £1m without having to pay inheritance tax.

Therefore it is more appropriate to use tax data on inheritance relief, rather than farm survey data, to estimate the impact of changes in the Budget on individuals.

The other challenges are several early government calculations of the number of plantations that can be affected is only called Bantuan Properti Pertanian (APR) and not Bantuan Properti Bisnis (BPR).

APR relates mainly to land value. BPR can include farm machinery and livestock, which can also make up a significant proportion of agricultural property value.

Indeed, APR and BPR relief will be capped at a combined £1m for inheritance tax purposes, meaning that a single estate will be able to claim no more than £1m in this combined relief.

Farmer groups have claimed that farmers often also use BPR so that any calculation of the impact of tax changes based only on APR claims will not capture the full effect on farming estates.

However, the the government has now published figures based on HMRC inheritance tax data that combines historical APR and BPR relief claims, and must capture agricultural estates that use the relief.

The figures show that while taking BPR as well as APR increases the number and proportion of plantations that will be affected, it does not change the picture.

The data shows that in 2021-22, the number of estates making combined APR and BPR claims with property values ​​over £1.5m will be 383, or 22% of all claims.

The number of estates worth more than £1.5m making an APR claim was just 278, or 16% of the total.

The government’s latest figures remove the impact using a threshold of £1.5m, not £1m, explaining to BBC Verification that this was chosen based on the assumption that individual standard inheritance tax relief of £500,000 would be added to the new £. allowance of 1m.

BBC Verify asked the Treasury and HMRC for details of figures using £1m as a threshold – which would have been consistent with their original calculations showing only APR claims – but said they did not collate these figures.

Think tank CenTax has studied the impact of APR and BPR relief.

CenTax co-director Arun Advani stressed that the government’s estimate of the number of agricultural estates that would be affected by capping the two reliefs at £1m combined – up to 520 estates a year – seemed reasonable.

“Data on historic claims is a more reliable guide to the number of plantations affected than farm size surveys,” he said.

“While the government’s reforms will certainly be difficult for some farmers, especially since there are many other factors that reduce the income of farmers, the number that claims tens of thousands will be affected is not consistent with the evidence.”

David Sturrock of the independent Institute for Fiscal Studies also said the Treasury figures were “credible” and added that including the impact of the BPR capping “does not radically change the picture in terms of estates affected”.

The NFU has pointed out that if 500 estates are affected each year that can amount to 15,000 over 30 years – but this will still be some way less than 70,000 figures.

The NFU said many farms included in government figures were too small to be considered working farms.

The case is simple – if you exclude these small farms, the percentage of actual farms affected will be much higher.

It has pointed to the separation of APR inheritance tax relief claim data from HMRC, through the Treasury, which breaks down estates by size.

This shows that in 2021-22, 474 claims (27% of the total of 1,730) were for estates valued between £0 and £250,000, and 398 (23% of the total) were for estates valued between £250,000 and £500,000. .

“Many viable farms cost less than £1m,” said NFU president Tom Bradshaw.

That’s a reasonable argument.

If estates worth below £500,000 are excluded from the APR figure, the proportion of the total affected each year will automatically rise from the 27% provided by the government’s initial calculations.

NFU analysis suggests including only what is categorized as “working livestock” would increase the affected share from 27% to 49%.

However, it is estimated that the absolute number of affected estates – about 500 per year – will not be affected by the changes.

The main question is where the effective financial inheritance tax threshold is for estates with agricultural assets.

Farming groups have suggested the value of heritage properties with agricultural assets of more than £1m will be affected.

This is understandable as this is the threshold figure quoted in the Budget.

However, the government has since claimed that the effective threshold for many farming estates to pay inheritance tax may not be £1m, but £3m, due to the various inheritance tax reliefs available to estates.

A higher effective threshold would have a major impact on the proportion and number of plantations affected.

The overnment’s claim is based on the fact that estates of farmers, like estates of other people subject to inheritance tax, are eligible for a standard tax-free allowance, known as the nil-rate band, of £325,000.

He is also eligible for the £175,000 house nil-rate band. The latter is available to those who pass the primary residence to a direct descendant, such as a child or grandchild, as part of the estate. Together these two allowances total £500,000.

This is a £1m tax-free allowance for agricultural estates.

It’s not just the £1.5m allowance for a single person – for anyone married to their spouse they have the same effective allowance. Adding this together – and allowing the ability of farming couples to share benefits – creates the potential for some farming estates to pass £3m all free of inheritance tax.

Importantly, however, this can only be achieved if each spouse gets £1.5m of the total assets on their successive deaths, rather than in a single £3m estate after the death of the second spouse.

The ability of estates to push up the threshold to £3m will also depend on individual circumstances. Of course, not every farmer is married, and some may not live in the main house.

However, it is legitimate to assume that many agricultural estates can use these allowances, which are used by the rest of the population.

Finally, it is worth noting that the farm estate can be affected by this change in inheritance tax, without the estate having to pay more money in tax, because of the need for individuals to spend more time planning tax arrangements than before.