Number of farmers hit by tractor tax ‘substantially’ underestimated by ministers, MPs told

Inheritance tax hike announced by Labour chancellor Rachel Reeves in last year’s Budget

The government’s claims around the ‘family farm tax’ have suffered a major blow after a new calculation warned they “substantially” underestimate how many will be hit by the tax raid.

Ministers claim that only around 520 farms a year will be hit by the inheritance tax hike.

But new figures suggest the number will be 200 in Wales alone – a whopping 40 per cent of the forecast - despite the population of Wales being around 5 per cent of Engalnd’s .

Farmers have protested the changes (Getty Images)

Jeremy Moody of the Central Association of Agricultural Valuers said the assessment, by his organisation, “adds to the view that the official estimate of the number of those affected substantially underestimates that number” in evidence to the Commons Welsh Affairs Committee.

The chair of the committee Ruth Jones warned that changes to the tax should “not leave some out in the cold”.

Ministers are ploughing ahead with their plan, also dubbed the ‘tractor tax’, despite calls from supermarket giants including Tesco for a halt to the divisive policy.

In a highly unusual move, some of the UK’s largest retailers have backed farmers in their fight against Rachel Reeves’ raid, warning the “UK’s future food security is at stake”.

The policy recently suffered another blow when the Office for Budget Responsibility (OBR) warned it may raise less than the Treasury hopes, with the £500m-a year-revenue forecast given a “high” uncertainty rating and likely to fall after seven years as families use tax planning to avoid the charge.

Chancellor of the Exchequer Rachel Reeves launched the tax changes as part of the October Budget (Ian Forsyth/PA) (PA Wire)

The changes mean that farms valued at £1m or more would be liable for 20 per cent inheritance tax.

The Treasury says that, with tax allowances, in reality, only farms worth £3m would be affected, just 28 per cent of family farms. But official Defra figures appear to suggest as many as 66 per cent could be hit.

Ministers have defended the changes, saying that they had to take “difficult decisions” in the wake of what Labour says is a £22bn black hole in the public finances left by the last Tory government.

Mr Moody suggests the Treasury’s figures could be too low because they do not take account of farming claims made only under what is called Business Property Relief, and that the change is expected to create new claims that would previously have been exempt.