What does the new CenTax report say about IHT reforms?

The Centre for the Analysis of Taxation (CenTax) has issued a new report, which claims that proposed changes to inheritance tax (IHT) reliefs would protect family farms ‘to a large extent’. 

However, the report also states that the reforms could be better targeted, and while it doesn’t support the ‘clawback’ that the industry has clamoured for, it makes a series of recommendations for improvements to the plans.

Despite large scale protests from the farming sector, the government plans to remove agricultural property relief and business property relief on inheritance tax for all farm estates valued over £1 million from April 2026.

Key claims shared in the report include:

• 480-600 farm estates per year would be impacted by the reform, and would pay additional tax if there was no change in behaviour
• Around 205 impacted farm estates per year (43% of all those impacted) could potentially comprise ‘small family farms’ (with a share of APR/BPR in the total estate above 60% and an estate value less than £5m)
• Owner-farmers represented 17% of all farm estates but 37% of impacted farm estates. Landowners are less likely to be affected (representing 64% of all estates but 42% of impacted estates)
• 86% of impacted farm estates could pay their entire IHT bill out of non-farm assets, leaving 70 estates per year that could no. Of these, around 40 a year would face a residual bill greater than 2-% of the farm’s income after tax and depreciation, if paid in 10-year annual instalments.

Proposed changes to the reforms

CenTax did not support a clawback of the reforms, stating: ‘We conclude that a clawback would not meet the Government’s stated objective of reducing the concentration of relief and is unlikely to raise as much revenue as the planned reform. 

‘It would also not be feasible to deliver by April 2026 due to the major changes in legislative infrastructure and administrative systems required.’

Instead, it suggested the following potential adjustments:

• Minimum share rule: Removing relief from estates for which farm and business assets are a relatively minor share
• Upper limit on relief: Restricting relief to the first £10 million of claim, with no additional relief above this limit
• Transferrable allowance: Making the combined allowance transferrable between married couples, meaning that any unused allowance on the first death could be carried over to the surviving spouse. 

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Welcome report

Commenting on the report, National Farmers Union (NFU) president Tom Bradshaw said: 

“We welcome this detailed report by CenTax which recognises that working farms will be disproportionately affected by this tax. 

“This is not a fair and balanced approach to reform and does little to counter those who seek to shelter wealth from inheritance tax by simply investing in farmland.”

He added: “There are interesting adjustments within the report that appear to mitigate the impacts on the most vulnerable in our community and enable farms to invest in the future of food production with greater confidence.”

The independent analysis was described as a “positive and timely opportunity” for fresh conversations with the government ahead of the Finance Bill. 

Short-sighted and damaging

However, the Country Land and Business Association (CLA) hit back at the report for concluding that the government’s policy is “fundamentally good”.

President Victoria Vyvyan said: Just like Treasury ministers, however, CenTax has used a tiny amount of data to justify their view, and failed to speak to a single farmer or family business owner. If they had, they would understand – and I hope, care more – about the devastating consequences of the policy on the economy.”

She claimed that the IHT reforms will cost the exchequer £2bn, with 200,000 jobs lost and £15bn in lost economic activity. 

Referring to one of the report’s recommendations to increase the threshold for relief, she added:

“While a higher relief threshold would help some businesses, it would only minimise the damage, not remove it entirely. 

“In considering any alternatives Treasury must become more willing to work with businesses and entrepreneurs to understand how growth can be stimulated for businesses of all sizes, rather than steamrollering through such a short-sighted and damaging policy.”

Responding to the report, a government spokesperson said: “We designed these upcoming reforms so they address stark unfairness in the distribution of reliefs, whilst ensuring that the few estates facing higher bills can pay them in a manageable way. This report supports that.”

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