Tax experts accuse Starmer over ‘misleading’ £3mn farm tax claim

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Tax experts have cast doubt on Sir Keir Starmer’s claim that a “typical family” farm would get £3m of inheritance tax relief.

They argue that the government figure is “misleading” because it requires farmers to meet complex conditions that include the possible division of farm ownership when one spouse dies.

The Prime Minister has repeatedly used the figure to defend a controversial Budget decision to introduce inheritance tax on agricultural assets above £1m, saying earlier this month that “the threshold is £3m” in a “typical family case”.

“It’s not necessarily that the £3 million that’s being talked about is wrong, it’s more misleading,” says Emma Hale, legal director at Boodle Hatfield. which may limit the benefits available to each.”

The £3 million figure is made up of many elements; £325,000 relief for all asset categories; and £175,000 to take home to children or grandchildren.

This is £1.5m which the spouse can pass on directly to their children.Both partners must pass this on up to the £3m exemption.

But this means that any farm owned by a single person or couples who are not married or in a civil partnership cannot reach the £3m allowance.

There are other factors that make it difficult to reach the full £3 million benefit.

The homestead exemption is reduced if either partner’s share in the farm is more than £2m and is scrapped at £2.35m.

For a couple to reach the £3m benefit, the first spouse to die must leave £1m of their estate to someone other than the spouse, so that the second spouse’s estate does not exceed £2m.

The result is that farm ownership will likely have to be split to receive full relief.

“On the first death you have to make sure you transfer the property to someone else and they then become a joint owner with the spouse,” said Haley at Boodle Hatfield “It gets very messy.”

Camilla Wallace, senior partner at Wedlake Bell, said the £3m figure was “unlikely to be realistic when you’re drilling” and reckoned £2.65m was a more likely figure for larger farmers. for to be able to claim.

The Treasury declined to comment. The government said the policy, which applies to farmers worth more than £1 million, would only apply to about a quarter of commercial family farms. But the National Farmers Union said the actual figure was three quarters of farms.

While much of the talk of relief has focused on farmers, the same will apply to business owners as the Budget changed the rules for business property relief (BPR) in the same way as for agricultural property relief.Family farms often have to use both the APR for their land , as well as BPR for their livestock and vehicles.

The Treasury has estimated that the APR and BPR changes will result in a total of £1.8bn by 2029-30.CBI Economics estimates that only £387m of that figure will be in April.