The changes to inheritance tax will impact even more farmers than expected, according to analysis by the Central Association of Agricultural Valuers (CAAV).
A report by the organisation found that the amount of farmers affected had been underestimated by a least a factor of five, equating to around 75,000 producers in a generation, instead of the 500 quoted by the government.
Now, further analysis has indicated that an additional group of farmers will be affected.
“Looking at HMRC’s express advice on tax returns, it states that where full business property relief (BPR) applies (as in most farming cases), the values given in tax accounts should be used, not the open market value,” says Jeremy Moody, secretary and adviser to the CAAV.
“Farmers’ accounts for assets that qualify for BPR – like machinery and livestock – are based on historic cost. This means they will be valued at significantly less than open market value.”
However, the new rules will see assets accounted for at the current market value, taking significantly more people over the threshold for inheritance tax and adding additional cost to those already affected.
The CAAV states that this will particularly impact livestock farms.
“Not only does HMRC allow that the ‘deemed cost’ for cattle in accounts is 60% of market value, but the statutory ‘herd basis’ option for accounting for tax on breeding and production animals is based on the original cost of a herd or flock,” explains Jeremy.
“Market value would mean a potentially massive uplift over the accounting value for a long-standing dairy herd, for example.”
The organisation notes that when BPR was at 100%, it was pragmatic of HMRC to forgo independent valuations as it saved time, effort and cost. However, livestock, machinery, silage and other operational assets will have to be valued upon death.
“All of this means that yet more money will have to be found to pay the tax, whether by selling more land, more operational business assets, or foregoing more income and investment,” Jeremy adds.
“It was clear from the outset that the Government had not appreciated the potentially devastating implications of this new farm tax. Not only did our original research show it had underestimated its impact five-fold, by omitting large numbers of farmers from its figures, it’s now clear that even more people will be affected. This hurts the people it claims to protect and protects those it claims to hurt. It is time to drop this tax.”