The average farm business in England will be liable for an inheritance charge of £240,000 (€283,000) under the new rules introduced by Britain’s chancellor of the exchequer Rachel Reeves.
However, the tax bill increases to £320,000 (€378,000) where funds have to be borrowed to pay the inheritance charge.
The UK’s Agricultural and Horticultural Development Board (AHDB) warned that many farms will not be capable of carrying the level of borrowings required to pay inheritance taxes.
The new inheritance tax regime announced last week by the British government means that an effective rate of 20% will now be applied on assets over £1m.
The AHDB pointed out that the average net worth of farm businesses in England is £2.2m - based on research carried out by the industry body. Therefore, if this average-value farm is inherited, the inheritance charge on this holding is £240,000.
Borrowings
Where borrowings are required to cover the cost of inheritance charges, then a further £81,000 (based on interest rate of 6.1%) in interest charges will be paid on a loan of £240,000.
This takes the total cost of the inheritance tax plus loan repayments for the average English farm to over £320,000.
AHDB economists maintained that the ability to absorb this extra borrowing within farms will be limited and that the new tax regime is likely to result in the earlier transfer of land.
AHDB head of economics Sarah Baker said: "These changes may encourage farmers to think about succession earlier than they would otherwise.
"For example, there is a seven-year rule which applies in the case of land transfers. This means that any land gifted to an individual will be free of inheritance tax after seven years.
"Basically, the benefactor must live for seven years or more after gifting the land."
Loophole
The inheritance tax changes are intended to close a loophole in the previous regime that enabled private and institutional investors to transfer vast quantities of wealth across generations free from tax.
Figures compiled by UK estate agents Strutt and Parker indicated that 60% of land marketed in 2023 was bought by private and institutional investors and so-called 'life stylers'.
The new inheritance tax regime has been lambasted by farm organisations across Britain and Northern Ireland.
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