Rachel Reeves should water down her inheritance tax raid on family farms to protect workers, according to a think tank that championed the controversial Labour policy.
The Centre for the Analysis of Taxation (CenTax), which has been broadly supportive of the idea of a so called ‘tractor tax’, warned that landowners were “less likely to be impacted by the reform than working farmers”.
The move will increase pressure on the chancellor over her plans, which critics say could sound the death knell for many family farms.
The changes mean that farms valued at £1m or more will be liable for 20 per cent inheritance tax.
The Treasury says that, with tax allowances, in reality only farms worth £3m would be affected – around 28 per cent of family farms.
But official Defra figures appear to suggest as many as 66 per cent could be hit.
Ministers have defended the changes, saying that they had to take “difficult decisions” in the wake of what Labour says was a £22bn black hole in the public finances left by the last Tory government.
However, CenTax has now said that working farmers are more likely to suffer under the policy, despite Labour’s claim to protect working people.
It suggested two ways the policy could be better targeted, including capping inheritance tax relief to the first £10m of a claim to allow 100 per cent relief to £2m per estate.
It also suggested a “minimum share rule”, to remove inheritance tax relief for passive investors in farmland, so they cannot be used as a “tax shelter”.
Last year, minister Daniel Zeichner told MPs the government had introduced the plans to protect small fares.
He said: “Currently, small farms can find themselves facing the same levels of tax bills as much larger farms, despite having a much smaller asset. Twenty per cent of agricultural property relief is claimed by the top 2 per cent; 40 per cent is claimed by the top 7 per cent.
“That is not fair, it is not sustainable, and sadly, it has been used in some cases by wealthy landowners to avoid inheritance tax. That is why the Government has announced plans to reform agricultural property relief.”
CenTax found just 20 per cent of landowner estates would be hit by the tax, compared to 25 per cent of tenant farmer estates, 45 per cent of owner-farmer estates, and 67 per cent mixed tenure estates.
CenTax said: “Landowners are less likely to be impacted by the reform than working farmers, representing 64 per cent of all farm estates but 42 per cent of impacted farm estates. Owner-farmers represent 17 per cent of all farm estates but 37 per cent of impacted farm estates.”
Mo Metcalf-Fisher, from the Countryside Alliance, said: “Labour ministers repeatedly say they want to protect genuine family farming businesses, while tackling tax avoidance, through inheritance tax changes.
“The evidence, however, points to it being these very families and their farms that will be badly impacted by the policy, as it stands.
“There is still time to listen to experts from the farming sector and rethink the policy before it’s too late.”
Ms Reeves is currently under pressure to find a £50bn hole in the government’s finances, according to the National Institute of Economic and Social Research.
