CenTax outlines four potential reforms to better target the APR and BPR reliefs.
A key question for advisers is whether there will be changes to the draft legislation on the reforms to agricultural property relief (APR) and business property relief (BPR). As clients need advice now, it is important to consider how the Government may still change what has been proposed, mostly likely in the forthcoming Autumn Budget.
In this context, the Centre for the Analysis of Taxation (CenTax) recently published a report titled The Impact of Changes to Inheritance Tax on Farm Estates. The report uses HMRC data to consider possible changes. It is a substantial document that runs to 135 pages.
Should you take any notice of CenTax? CenTax is not a government body. It is funded by the Nuffield Foundation and the abrdn Financial Fairness Trust and is supported by the LSE and the University of Warwick.
In the last nine months, I have been invited to discuss the APR/BPR reforms with CenTax on three occasions and so I was interested to see what conclusions they had reached. Their work is very methodical with considerable financial analysis of the impact on farms and other agricultural holdings, but it remains an academic report about tax policymaking.
What does the report cover? The report is a major piece of work but it only looks at the farming sector and the conclusions and suggestions they make may not apply to other business sectors. My impression is that looking at all businesses was too big a task for the resources of CenTax.
The report endeavours to arrive at the Government’s objectives behind the reforms and to suggest plausible alternatives to what has been proposed in the draft legislation. The quality of the empirical approach, the attempt to match the perceived ‘brief’ of the original reforms and the relatively limited ambition for change mean that it is a report that is worth taking seriously and highlighting to clients.
The report looks at whether the IHT liabilities can largely be funded from non-business assets and farm income (page 55 of the report) and concludes that they largely can (page 59) but in doing so ignores family considerations. Implicitly the analysis assumes that all inherit assets equally. That is not how things happen in real life and shows a disconnect between tax policymakers and those advising family business owners.
Policy objectives and constraints: The Government stated in July that the purpose of the reforms is to raise revenue and to better target the reliefs on farms and businesses (see page 62). CenTax suggests that the intentions are to reduce the concentration of APR/BPR on high value estates, to protect ‘family farms’ and possibly to reduce use of APR/BPR as a tax shelter. Any changes to the draft legislation need to better achieve these objectives.
In terms of constraints (page 64), any changes to the proposed reforms must be deliverable by April 2026, raise at least as much money as already announced and not increase economic distortions. Crucially, any changes must be capable of being ‘scored’ by the Office for Budget Responsibility (OBR).
The report does not believe that the ‘clawback’ alternative put forward by Tax Policy Associates and the National Farmers Union (NFU) meets these policy objectives and constraints (pages 68–71). It would probably raise less revenue and as there is no reliable data on such a policy, the OBR would not score it.
What does the report suggest instead? The report suggests four possible changes:
Making the 100% allowance transferable between spouses and civil partners (page 29). This would save compliance costs and be fairer.
Introducing a minimum qualification of APR/BPR assets being at least 60% of the estate (page 72). This is an attempt to focus the relief on farms and farmers and prevent usage of the reliefs as a tax shelter. It also increases the tax revenue raised that may facilitate a higher 100% allowance.
Capping APR/BPR at £10m of relief (page 79). This would reduce the concentration of the reliefs further and could raise additional revenue that may facilitate a higher 100% allowance.
Potentially increasing the 100% allowance to between £1.5m and £5m (page 87). This would better protect family farms.
What the above does is to better target the reliefs. This will create cliff edges, meaning winners and losers and additional complexity. You need to be aware of these possible changes when giving advice.
Home >Articles > CenTax recommends changes to protect family farms
CenTax recommends changes to protect family farms
CenTax outlines four potential reforms to better target the APR and BPR reliefs.
A key question for advisers is whether there will be changes to the draft legislation on the reforms to agricultural property relief (APR) and business property relief (BPR). As clients need advice now, it is important to consider how the Government may still change what has been proposed, mostly likely in the forthcoming Autumn Budget.
In this context, the Centre for the Analysis of Taxation (CenTax) recently published a report titled The Impact of Changes to Inheritance Tax on Farm Estates. The report uses HMRC data to consider possible changes. It is a substantial document that runs to 135 pages.
Should you take any notice of CenTax? CenTax is not a government body. It is funded by the Nuffield Foundation and the abrdn Financial Fairness Trust and is supported by the LSE and the University of Warwick.
In the last nine months, I have been invited to discuss the APR/BPR reforms with CenTax on three occasions and so I was interested to see what conclusions they had reached. Their work is very methodical with considerable financial analysis of the impact on farms and other agricultural holdings, but it remains an academic report about tax policymaking.
What does the report cover? The report is a major piece of work but it only looks at the farming sector and the conclusions and suggestions they make may not apply to other business sectors. My impression is that looking at all businesses was too big a task for the resources of CenTax.
The report endeavours to arrive at the Government’s objectives behind the reforms and to suggest plausible alternatives to what has been proposed in the draft legislation. The quality of the empirical approach, the attempt to match the perceived ‘brief’ of the original reforms and the relatively limited ambition for change mean that it is a report that is worth taking seriously and highlighting to clients.
The report looks at whether the IHT liabilities can largely be funded from non-business assets and farm income (page 55 of the report) and concludes that they largely can (page 59) but in doing so ignores family considerations. Implicitly the analysis assumes that all inherit assets equally. That is not how things happen in real life and shows a disconnect between tax policymakers and those advising family business owners.
Policy objectives and constraints: The Government stated in July that the purpose of the reforms is to raise revenue and to better target the reliefs on farms and businesses (see page 62). CenTax suggests that the intentions are to reduce the concentration of APR/BPR on high value estates, to protect ‘family farms’ and possibly to reduce use of APR/BPR as a tax shelter. Any changes to the draft legislation need to better achieve these objectives.
In terms of constraints (page 64), any changes to the proposed reforms must be deliverable by April 2026, raise at least as much money as already announced and not increase economic distortions. Crucially, any changes must be capable of being ‘scored’ by the Office for Budget Responsibility (OBR).
The report does not believe that the ‘clawback’ alternative put forward by Tax Policy Associates and the National Farmers Union (NFU) meets these policy objectives and constraints (pages 68–71). It would probably raise less revenue and as there is no reliable data on such a policy, the OBR would not score it.
What does the report suggest instead? The report suggests four possible changes:
Making the 100% allowance transferable between spouses and civil partners (page 29). This would save compliance costs and be fairer.
Introducing a minimum qualification of APR/BPR assets being at least 60% of the estate (page 72). This is an attempt to focus the relief on farms and farmers and prevent usage of the reliefs as a tax shelter. It also increases the tax revenue raised that may facilitate a higher 100% allowance.
Capping APR/BPR at £10m of relief (page 79). This would reduce the concentration of the reliefs further and could raise additional revenue that may facilitate a higher 100% allowance.
Potentially increasing the 100% allowance to between £1.5m and £5m (page 87). This would better protect family farms.
What the above does is to better target the reliefs. This will create cliff edges, meaning winners and losers and additional complexity. You need to be aware of these possible changes when giving advice.
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