Thread by @DanNeidle

Lots of over-the-top coverage right now about the £1m cap on inheritance tax agricultural property relief (APR).

Quick thread:

Background: if I'm a landlord with a portfolio of properties, or an investor with a portfolio of listed shares, when I die my estate pays 40% inheritance tax (IHT). Until now, APR meant that agricultural estates were completely exempt from IHT.

The Budget caps the exemption at £1m. Beyond that, IHT applies to agricultural property at half the usual rate - so 20%.

But the £1m figure is misleading, because IHT won't usually apply to farms worth £1m...

... Small farms usually include the farmhouse. So, for a married couple, the estate as a whole will benefit from £650k total nil rate band plus £350 residence nil rate band plus £1m agricultural property relief.

That's £2m exemption in total, covering most small farms.

That's why, if we look at the stats, 87% of inherited agricultural property used less than £1m of APR and so will remain completely exempt.

Almost half the £1bn cost of APR went to 63 estates of median value £8m. Doesn't seem great value for money for the taxpayer.

For farms just over the threshold, the IHT is easily managed.

Farmers who are youngish (say <70) can buy life insurance to cover the IHT. Won't cost much given the small level of cover required (i.e. for a £2m farm it's £200k IHT max).

As they get older, and life insurance starts getting expensive, they can give the farm to their kids. Live seven more years; no IHT. No need for the insurance anymore.

(The dirty truth about IHT planning is that anyone youngish, in good health, who's worried about IHT should just buy lift insurance. By far the easiest/cheapest/most ethical way to avoid the impact of IHT, without avoiding IHT)

Once we get into much larger agricultural businesses, worth many £m, then insurance becomes expensive, but at that point we're looking at sophisticated businesses and it's reasonable to expect people to finance the tax (which can be paid over 10 years).

I'm seen some hysterical takes on this: "£20k could make the difference between a £2m farm being profitable or loss making". [£20k over ten years = IHT on £2m]

Nope. If it's making less than £20k profit/year, it ain't worth £2m.

And we've been here before. The old capital transfer tax (predecessor to IHT) had no agricultural exemption at all. In 1975 a 30% relief was introduced. The complete exemption we have now was only created in 1992.

The sky did not fall in.

So the various dire predictions I'm reading don't seem very realistic.

Apologies for wrong table posted above. Should have been this one. Same point about concentration of small number of very valuable estates applies. Half of all estates under £500k. 73% under £1m

@gingersquirrel8 But yes, if the figures start changing dramatically then the policy should change. No good reason to pre-empt that. 2/2

And another apology. In many cases the cap won't be £1m in practice, it will be £2m, because a married couple who run a farm business together can each use their own £1m cap.