Farmers warned of stealth tax on gifted assets

December 23, 2024

Price Bailey, one of the UK’s top 30 accountancy firms, warns of a “stealth tax” that could saddle the next generation of farmers if landowners rush to gift assets to their children. Capital Gains Tax liabilities could increase by over 400% for some farmers according to calculations by Price Bailey.

With the Budget bringing news of a controversial change to the long-standing inheritance tax exemptions for British Farmers, many landowners are now considering gifting assets in lifetime. A move made to mitigate the effects of the new IHT rules on the next generation of cash-poor farmers.

But accountancy firm Price Bailey warns of a stark consequence for future generations, who may need to sell assets to access capital.

Will Sherring, Agricultural Expert at Price Bailey comments: “Farmers don’t want to sell their farm, or parts of it. The land is a working asset, and any reduction in area will result in a loss of revenue and security. But with the demise of EU subsidies, supermarkets continuing to dictate on pricing and now rising inflation, some farmers are over a barrel. To keep the farm afloat, they face selling some of their assets.”

Sherring explains that in some circumstances Capital Gains Tax liabilities could increase by over 400% if the next generation, now in receipt of gifted assets, are forced to sell. Often, farmland has been owned for decades, with significant swathes of land being owned for generations. Once gifted, the cost of this land will likely be “held-over”, resulting in a low base costs. The Capital Gains Tax of some land could therefore be worked out on re-based values of March 1982 (if not obtained after this date).

Sherring continues: “When an asset is sold at today’s market rate, and the gain is based on a valuation from 1982, the Capital Gains Tax liability becomes enormous. Previously this wasn’t a concern as all land was re-valued when a farm business was passed on death, this won’t happen when gifting.

“There is a risk here, and the decisions around what assets are gifted could leave future farmers at risk of inheriting a significant Capital Gains Tax burden. Seeking support by an advisor on this is sensible.”

Sherring concludes: “Unfortunately, this isn’t even the worst-case scenario. We could see situations where assets are given away and sold within 7 years, creating CGT liabilities. If the Giftor then dies within that period, the value of the original gift will be brought back into their estate and potentially charged to IHT as well”.

Price Bailey advises that farmers carefully consider which assets they gift away. Gifting assets more recently acquired could reduce the exposure to a hefty CGT bill further down the line, should their children need to free up cash reserves by selling some of the farm’s assets. Keeping longer held land in the estate would be advisable.

The squeeze on farming

A recent survey conducted by Price Bailey of Finance Directors highlighted that across two-thirds of all 12 surveyed industries, the majority of FDs expect to see their company increase prices of their products or services over the next 12 months in order to grow.

Farmers remain unable to increase prices to match inflation and often have little knowledge on the expected return of their produce when making business decisions now, which might take 12-24 months to come to fruition.

More information on the Budget changes and what they mean for Farmers is available on Price Bailey’s website: https://www.pricebailey.co.uk/blog/the-future-of-uk-farming/