Inheritance Tax: Family-owned Businesses

Debate between James Murray and John Hayes

Tuesday 3rd June 2025 Westminster Hall

[James Murray]

My hon. Friend is a great champion of businesses and farmers in her constituency. When we were deciding how to reform agricultural property relief and business property relief, we made sure that generous tax reliefs still existed in the tax system precisely because we want to continue to support small and family-owned farms and businesses in particular. I will come to those in a moment.

I am conscious that you asked me to give you a few moments at the end, Sir John. Do you mean at the end of my remarks?

[Sir John Hayes (in the Chair)]

I need about 15 seconds at the very end of your remarks.

[James Murray]

Got it. To conclude my remarks on the wider support that we are giving to businesses, I also draw hon. Members’ attention to the fact that we committed in the “Corporate Tax Roadmap”, which was published at the autumn Budget, to maintain the small profits rates and marginal relief at their current rates and thresholds, as well as the £1 million annual investment allowance.

I know that many Members are concerned about the reforms to inheritance tax that are the subject of the debate, so I will now turn to them. The reality is that the full, unlimited relief introduced in 1992 has become unfair and unsustainable, particularly in the economic context that we inherited. Under the current system, the 100% relief on business and agricultural assets is heavily skewed towards the wealthiest estates, which is clear from the latest HMRC data from 2021-22. More than 50% of business property relief was claimed by just 4% of estates making claims. That means that the wealthiest few per cent of estates claimed £558 million in tax relief. That contributes to the very largest estates paying a lower average effective inheritance tax rate than smaller estates. It is neither fair nor sustainable to maintain such a large tax break for such a small number of claimants, given the wider pressures on the public finances. It is for that reason that the Government are changing how we target agricultural property relief and business property relief.

Under the reformed system, estates will still benefit from 100% relief for the first £1 million of combined assets from April 2026, and on top of that there will be an uncapped 50% relief on further assets. That means that inheritance tax will be paid at a reduced effective rate of up to 20%, rather than the standard 40%. Those reliefs sit on top of the standard nil-rate bands and other exemptions, such as transfers between spouses and civil partners.

Farming and Inheritance Tax

Debate between James Murray and John Hayes

Wednesday 4th December 2024 Commons Chamber

[The Exchequer Secretary to the Treasury (James Murray)]

I beg to move an amendment, to leave out from “House” to the end of the Question and add:

“thanks farmers for their immense contribution to the UK economy and the nation’s food security; welcomes the Government’s commitment of £5 billion to the farming budget over the next two years, the biggest budget for sustainable food production and nature recovery in UK history; acknowledges that the Government is having to make difficult decisions to protect farms and farmers in the context of the £22 billion fiscal blackhole left by the previous Government; recognises that the Government is seeking to target Agricultural Property Relief and Business Property Relief to make them fairer whilst also fixing the public services that everyone relies on; and notes that under the changes announced in the Budget around three quarters of claims for Agricultural Property Relief, including those that also claim Business Property Relief, are expected to not pay more Inheritance Tax.”

I welcome the chance to open the debate on behalf of the Government. The Government’s commitment to farmers is steadfast. As our amendment makes clear, farmers make an immense contribution to the UK economy and to the nation’s food security. We recognise and respect the crucial contribution that farmers make to our country’s way of life.

We must also recognise, however, the state of our public services and the mess in which we found the public finances when we came into power. There was no way we could have left things as they were. Unlike the Conservatives, there was never any question of Labour ignoring the £22 billion black hole that we uncovered in the public finances. We had to bring the previous Administration’s fiscal irresponsibility to an end. We had to ensure that our country lives within its means. We had to get public services back on their feet while meeting our tough new fiscal rules, which end borrowing for day-to-day spending. That is what we, as a responsible Government, had to do.

That is why, at the autumn Budget, the Chancellor set out a number of difficult but necessary decisions on tax, welfare and spending. These decisions were to restore economic stability, fix the public finances and rebuild our public services. One of the decisions we took was to reform agricultural and business property relief. We chose to do so in a way that maintains significant tax relief for family farms, while fixing the public finances as fairly as possible.

[Sir John Hayes]

The hon. Gentleman will want to explain this, Mr Speaker. The Government have argued that only 27% of farms will be affected by this measure, while the National Farmers Union says it is 75%. Will he at least give us an indication from the Dispatch Box, perhaps supported by a note in the Library of the House, showing the modelling that contradicts the NFU’s figures?

[James Murray]

I point the right hon. Gentleman to the letter the Chancellor recently sent to the Treasury Committee, which sets out some of these figures in detail. Some of the confusion that he and other hon. Members have encountered might come from the fact that there are different sets of data. The set of data he may be referring to relates to the total value of farms across the country, but if we are thinking about inheritance tax claims, it is right to look at His Majesty’s Revenue and Customs claims data on inheritance tax. Looking simply at the value of a farm does not tell us what the inheritance tax liability for that farm may be, given that we would have to look at the ownership structure—at who owns what—and at any liabilities, and so on. That might be where some of the right hon. Gentleman’s confusion is coming from.