Farming families could soon be facing a potential tax hike as the government looks at possible changes to Capital Gains Tax.
Many farmers can potentially pass on farms to their children free from Inheritance Tax due to Agricultural Property Relief and Business Property Relief.
As capital gains are wiped away on death, children inheriting can sell and only face Capital Gains Tax on any rise in value between the date of death and the sale.
However, Chancellor Rishi Sunak has ordered a review into this, and the Office of Tax Simplification has issued recommendations.
Gains should no longer wiped away on death where the estate has claimed Agricultural or Business Property relief to reduce inheritance tax, it said.
Responding to the recommendation, NFU Mutual said many farmers chose to hold on to their assets until death.
This was on the basis that not only might they be free of inheritance tax, but also escape Capital Gains Tax if sold shortly after death.
Sean McCann, NFU Mutual chartered financial planner, said: “The recommendation that gains should no longer be wiped on death where relief has been claimed to reduce inheritance tax will mean bigger tax bills for some farming families."
The biggest impact would be on those who sell farming assets they had recently inherited, he said.
"Those that retain the assets and continue to farm won’t face any immediate tax liability under the proposed changes."
The Office of Tax Simplification also recommended a hike in Capital Gains Tax rates that would align them to Income Tax rates, leading to larger tax bills.
Mr McCann said: “However, it’s likely that any change would be accompanied by an allowance to take account of the rise in value caused by general inflation, so any tax is only levied on ‘real’ gains.
“It’s important to stress Rishi Sunak has not yet confirmed he will agree to these recommendations, but many farming families will be watching the March Budget with interest.”
