Following the Autumn Budget and the consultation on trusts which took place in the Spring, HMRC released a series of papers on 22 July summarising the points raised in the consultation and outlining the draft legislative changes.
These show virtually no movement in the position outlined in the Budget, other than that the £1m allowance will be index linked, but only after 2030 (at which point index linking theoretically should resume for other IHT bands). It is also confirmed that, effectively, the £1m nil rate band will “refresh” after seven years.
The paper reiterates the logic behind the changes: “to raise revenue to ensure the sustainability of the public finances and to fund public services, whilst continuing to support farms and businesses by targeting the reliefs to make them fairer.”
It also goes on to justify the changes by stating: “in 2021 to 2022 (the most recent data available), 40% of the total Exchequer cost of agricultural property relief went to the top 7% of claims. This means just 117 estates benefited from £219 million in tax foregone.” However, examining these statistics in more detail shows that the average tax saving on the top 7% of estate was £1.8m (implying a farm of about 900 acres). Looking at the next 20% of farms the tax saving can be computed at just under £1m per farm, or about 500 acres. If one assumes a reasonably even distribution across these populations, it is clear that the bulk of the tax charge will fall on the medium sized commercial family farms rather than the alleged targets of those using agricultural land for tax avoidance purposes. The distribution also shows that, although 73% of those claiming APR would be unaffected by the changes, this sector averaged out at less than £50,000 per claim, or about 50 acres.
Putting all this together, the criticisms levied over the last nine months remain. This legislation will catch the family farm but not the lifestyle farmer and probably not the large estate. Although 73% of claims by number will escape tax that only represents about 20% of the acreage passing.
Finally, it is also worth mentioning that the figures given and used above purely relate to APR. Obviously, in most cases there will also be an associated claim for BPR which could easily amount to 20% of the APR claim (depending on the level of working capital). For many, pension pots will also need to be included in the IHT calculations.
We have all heard of “lies, damned lies and statistics.” It is disappointing that the Treasury continue to produce figures which, whilst no doubt accurate, are deeply misleading.
*the views expressed are the author's and not ICAEW's