Labour to ‘sting’ farmers who try and avoid inheritance tax raid with ‘enormous’ bill _ Hieuuk
Rachel Reeves has infuriated the farming community with her changes to inheritance taxes, with many saying the plans will spell the end for their farms.
Farmers are angry with the inheritance tax changes (Image: Getty)
Farmers looking to dodge Labour’s inheritance tax raid will be “stung” by other wealth taxes when they pass on their assets, an expert has warned.
Chancellor Rachel Reeves angered farmers with her decision to cut agricultural relief in her October Budget.
A 20% tax will now apply on land assets that exceeed a £1million threshold that farmers wish to pass onto children after death, although other exemptions will take this threshold up to £3million in many cases.
One way of avoiding inheritance tax is to gift assets to children before death – but an expert has now warned that this won’t fully protect farms from the taxman.
Nimesh Shah, of accountancy firm Blick Rothenberg, said that capital gains tax will still apply on the profit made since the asset was purchased – 18% on profits over the £3,000 annual exemption at a basic rate.
READ MORE: Tax experts warn 75k farmers to be hit by Reeves’s raid as doubt cast on figures
There has been debate about how many farms will be impacted (Image: Getty)
Capital Gains Tax is a tax on the profit when you sell something that’s increased in value. It’s the gain you make that’s taxed, not the amount of money you receive.
Mr Shah said: “Farmers will want to consider gifting assets during their lifetime and use the ‘seven-year rule’ to manage the inheritance tax exposure – this could be achieved by claiming capital gains ‘holdover relief’ so that the farmer does not crystallise an upfront capital gains tax charge.
“However, there is a ‘sting’ for the children receiving the farm, as they will face a much higher capital gains tax bill should they decide to sell the farm in the future – this is because the capital gain is essentially deferred when you claim the holdover relief, meaning the family is storing up a future tax problem.”
Farmers could be especially affected by the capital gains charges because many of them have owned assets for decades.
Will Sherring, of accountants Price Bailey, explained: “When an asset is sold at today’s market rate, and the gain is based on a valuation from 1982, the capital gains tax liability becomes enormous.”
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Reeves unveiled the changes in her Budger (Image: Getty)
Since Labour announced its inheritance tax changes, there has been debate about how many farms will be affected.
The Treasury estimates that about a quarter of farms will be impacted, or around 500 a year.
But farmer groups say this figure is too low.
The Country Land and Business Association claims that about 70,000 farms out of the roughly 200,000 in the UK will face inheritance bills.
