Over the last few days there have been a lot of commentators detailing why they believe that the farmers are wrong and that the Government is right to impose inheritance tax charges on farmers. They argue that farmers should not be treated differently to anybody else that owns an asset such as a house. They appear to miss the big difference that farmland is completely different to other assets.
For example, if you have a parent that’s living in the old family home, generally their offspring will have left home, they’ll have their own house, their own career and an income that is completely independent of the parent. When the parent dies, if there is an inheritance tax liability, the parent’s assets can be sold off and the liability paid to HMRC. The offspring get to take what is left and do with it whatever they like.
If you are the offspring of a farmer and intend to maintain that farm and there is an inheritance tax liability it is extremely unlikely that there would be available cash to settle the tax liability. It is also likely that you would be living on that farm and your income would be dependent on it.
Certain commentators glibly suggest that the offspring would just have to sell some of their land to pay the tax bill. Let us suppose someone follows this suggestion and needed to sell 5% of the land to cover the bill. He would have to sell a parcel of land that was useful to somebody else; he couldn’t just carve out a little corner of a field he doesn’t use so he would probably end up having to sell a larger portion of the property at a low rate to be able to generate at least that amount of cash. If he ends up having to sell say 10% of his land to meet this inheritance tax bill that means that his income would drop 10%. It’s as simple as that: the income cannot remain at where it was if he’s selling off part of the asset that is generating that income.
Would the commentators saying that everyone has got to be treated the same be prepared, when they inherit from a parent, to sell part of the parent’s assets to pay a sum to HMRC, not be able to sell the rest and have to take a reduction in their income just because they’ve inherited?
It has also been suggested that the only reason you pay inheritance tax is if you don’t trust your children as you can gift the farm to them and after seven years there is no tax liability. Setting aside farmers have not had to do this until now and do not have seven years now to execute the plan, there is a good reason they might not want to.
As you get older you will pass over more of the farm work to your offspring because he or she is younger and fitter than you. Farm workers are more than 20 times more likely to be killed on the job, according to health and safety figures. If you pass over the farm to your offspring and your offspring gets killed in a farm accident, what happens then? Is there a special clause so you could say you didn’t really mean it, it was only if you died first?
The simplest way to target the people who have put money into farm land as an inheritance tax dodge is just to make it so that a charge becomes due if the land is sold. If it is being passed on to another generation of farmers and is being farmed there should be no tax liability.
Inheriting a farm is quite simply very different from inheriting a house and anyone who cannot see that is incredibly stupid.
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