Farmers have been protesting Rachel Reeves’ inheritance tax raid. (Image: Getty)
Farmers trying to escape ‘ inheritance tax raid could instead find themselves or their children lumped with a bill of a different kind.
In a move on assets worth over £1 million, farmers are anticipated to give their assets to their children while they’re still alive.
After seven years, the gift is no longer liable for tax, avoiding the chancellor’s highly controversial reform.
However, this could incur a steep bill, which is paid on profits made on the asset since it was purchased. This “sting” tax could be passed down to the children of farmers who choose to defer their capital gains tax liability.
The base rate is 18% on profits over £3,000 annually, increasing to 24% as the higher rate. For example, a £2million inherited farm that was originally bought for £500,000 would rack up a capital gains tax bill of £480,000.
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Farmers attempting to dodge inheritance tax may end up with a capital gains tax bill. (Image: Getty)
On the flip side, inheriting a farm upon the death of a parent and then selling it would not require capital gains tax to be paid due ot the capital tax uplift on death.
Nimesh Shah from accountancy firm Blick Rothenberg warned of the “sting” tax many children of farmers may be handed as they “store up a future tax problem”.
He told : “Farmers will want to consider gifting assets during their lifetime and use the ‘seven-year rule’ to manage the inheritance tax exposure.
“This could be achieved by claiming capital gains ‘holdover relief’ so that the farmer does not crystallise an .
“However, there is a ‘sting’ for the children receiving the farm, as they will face a much higher capital gains tax bill should they decide to sell the farm in the future.
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“This is because the capital gain is essentially deferred when you claim the holdover relief, meaning the family is storing up a future tax problem.”
Accountant Will Sherring also warned that, because farms are often owned for decades and past down to the next generation, the capital gains .
He told the outlet: “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.”