The Chancellor Jeremy Hunt has been urged to do more to help farming families in the forthcoming spring budget, such as thawing frozen tax thresholds.
There are concerns over the government’s policy of keeping income tax, inheritance tax and child benefit tax thresholds unchanged for years, despite high inflation impacting farmers' finances.
To raise extra tax without being seen to increase headline tax rates, the government has pledged to keep the thresholds at which people pay tax fixed until 2028 instead of uprating them with inflation.
But with inflation nearing 10%, NFU Mutual has warned that many farming families' spending power is falling as any extra income they receive often results in them being caught in a tax trap.
The same policy means more farming families are being forced to repay or opt out of child benefit as wages increase to keep up with inflation, the rural insurer says.
And farming families' ability to pass assets down to the next generation is also being threatened by tax-free allowances on Inheritance Tax being frozen.
Although Agricultural Property Relief and Business Property Relief can help cut inheritance tax on farms and business assets, more families could be faced with inheritance tax bills on other assets such as let residential property, investments and personal belongings.
Sean McCann, chartered financial planner at NFU Mutual, said: “Rising incomes and asset prices mean more and more farmers are being drawn into 40% and 45% Income tax rates, the Child Benefit tax charge, and Inheritance Tax.
“Thawing some of these frozen thresholds in the Spring Budget [15 March] by uprating them in line with inflation will help many, including farmers, deal with rising bills.
“Inheritance tax is unnecessarily complicated and ripe for reform. Getting rid of the myriad of gifting allowances in favour of one annual gifting allowance of £15,000 would help simplify the tax for the increasing number of families who fear being caught by inheritance tax.
“It’s important that any changes do not impact Agricultural Property Relief and Business Property Relief, which are vital in ensuring that family farms can be passed on intact.”
NFU Mutual has also called for the amount people can invest in a pension without attracting a tax penalty to be increased to help farmers plan ahead for retirement and avoid being a financial burden on younger generations.
“Although farmers typically work late into life, many rely on a personal pension as an independent source of income, allowing them to gradually hand over the farm to the next generation," Mr McCann said.
“Increasing the amount you can accumulate in pensions without incurring a tax charge will help farmers plan how best to hand the farm down to the next generation.”
Looking at other measures, NFU Mutual farm specialist Chris Walsh said deferring the planned 5p rise in fuel duty and maintaining the current energy price guarantee for households would help farmers and rural communities.
“Farmers are facing rising input costs, and rely heavily on fuel to get food from farm to fork," Mr Walsh said, “Deferring the planned 5p rise in fuel duty for another year will help reduce additional costs to farmers.
“While red diesel is commonly used for agricultural work, farmers also use white diesel and petrol for transporting livestock and produce around the countryside.
“Energy bills are also proving costly, especially for energy intensive sectors such as horticulture so we support calls from the farming unions to extend the Energy and Trade Intensive Industries (ETII) scheme to include horticultural and poultry production.
“With 12% of rural households living in fuel poverty, maintaining the current energy price guarantee on average household bills would make a difference to people in the countryside who are struggling to cope."
