The United Kingdom’s new inheritance tax rule set to be implemented from 2022 could pose “significant challenges” to the farming sector, according to leading accountancy firms.
Under the current laws, farmers can pass on their land and its assets without facing inheritance tax, thanks to an existing principle known as Agricultural Property Relief (APR). However, the new legislation proposes major changes to these guidelines by introducing more stringent conditions for APR eligibility. The impact of this shift could see farmers facing considerable tax liabilities during the handover of asset ownership.
As per the proposed rule, from next year, the APR for farmhouses will be linked to the trade of the farming business. Accounting experts suggest this approach may complicate matters for older farmers, as they may struggle to meet the “business activity condition” of this rule. This condition mandates that at least 20% of their time and expenditure should be spent on trading activities as opposed to property management.
Ernst & Young, one of the global leaders in accounting services, has reportedly warned that the new inheritance tax rule will force changes in traditional farming operations. They mention that it would not only impact farmers on the verge of retirement but could also potentially deter new entrants into the sector as it may reduce their inherited wealth.
Similarly, Deloitte, another leading accounting firm, has suggested potential unintended consequences, arguing that these new rules may not only increase pressure on farming activities, but also possibly harm the biodiversity gains that the current system fosters. A shift towards trading in an effort to meet the new specifications may inadvertently tip the balance against land management schemes that help maintain and enhance biodiversity on farmlands.
Online forums and social media sites are buzzing with concerns from those within the farming community. Impressions are notably leaning towards a sentiment of distress, with many highlighting the unforeseeable disruptions in their long-term planning brought in by this abrupt policy change.
However, these new rules are being introduced with the aim of reducing the alleged misuse of APR. The UK Government maintains it’s necessary to limit the tax relief to those genuinely engaged in farming trade, thereby curbing tax evasion by those exploiting the leniency of the previous system. Additionally, the reforms also intend to redistribute wealth more evenly, anchoring on the principle that those with larger estates should pay more.
The UK farming sector, which makes up an estimated 70% of UK land, faces heightened uncertainty as these proposed tax changes are set for implementation from April 2022. As we approach the interrogative stage in the House of Lords, stakeholders hope for a comprehensive debate that will balance the need for tax fairness while ensuring the viability and sustainability of the farming sector.
As is the case with any significant policy shift, the final impact of these proposed changes will only be observed in practice. However, the early chorus of concern from the accounting community and voices within the farming sector indicate that this new inheritance tax rule may mark a challenging path ahead for UK’s agriculture.
Original Source: https://www.theguardian.com/money/2026/apr/06/new-uk-farm-inheritance-tax-rule-will-cause-significant-challenges-say-accountants
