Farmers have warned they will effectively lose their pensions as a result of Labour’s inheritance tax raid.
Campaigners fear the “tractor tax” will decimate assets that agricultural workers had expected to draw upon when they retire, leaving the older generation out in the cold.
Until now, many farmers have chosen to reinvest all of their money in their business, rather than saving into a separate pot, on the assumption they will live off the proceeds later in life.
It was considered a sensible way to “future proof” their earnings, with each generation essentially funding their own pension plan by paying into an asset they could use to support themselves in their old age.
But it is feared the new inheritance tax bill imposed on agricultural property worth over £1 million will act as a massive drain on these resources, throwing people’s retirement plans into disarray.
Tom Bradshaw, the president of the National Farmers Union (NFU), said it was “incredibly” common for farmers to invest in their assets rather than paying into pension pots, as the “very best tax advice” had previously been to hold onto the land until death.
He told The Telegraph: “All of the liquid cash that’s been generated out of a farm business has gone back into reinvesting to continue producing the country’s food.
“It hasn’t gone into a pension, because up until 1.30pm on Oct 30 you could carry on drawing on the asset until death, so you just reinvested it in producing the country’s food.
“But the moment the Chancellor made her announcement, that became completely the wrong thing.”
He said it was unclear exactly how many farmers would have put all of their savings into their business.
But he said: “The reality is that the very best tax advice until 1.30pm on October 30 was to keep your asset to death and keep drawing from it, so you didn’t have to prepare for a time where you wouldn’t have access to it.
“And so significant percentages just don’t have the ability to take themselves out of their businesses because they still need the drawings.”
It comes as thousands of farmers are set to descend on Whitehall on Tuesday in protest at the tax raid announced at the Budget, which will mean farming assets worth more than £1 million will be subject to a new 20 per cent levy.
Campaigners claim the move will force many struggling families to break up their farms or sell them altogether.
Fergus Howie, whose family farm in Essex, Wicks Manor, is set to be hit with a £600,000 tax bill as a result of the change, said he had been made to feel as if he had been playing the “wrong game” his whole life.
The 49 year-old has paid everything he has into the asset on the assumption it will act like a “self-invested pension” when his children take over most of the day-to-day work.
He told The Telegraph: “A lot of farmers have just thought, I’ll put a shed up, I can use that for agriculture, it’s an extra asset, it makes the farm theoretically worth more, I can then pass that to the next generation.
“When I retire, I’ve taken something and I’ve made it better, and the next generation have got more opportunities.
“And then I can just wander down the drive and live in the farm cottage at the end of the drive, I can watch them farm. And I can always say, ‘let’s just let that shed out’, that would just bring me a bit of income.
“And that’s how it goes. That’s how we’ve done it. We’ve put all of our cash back into the farm.”
He added: “Your lifetime’s work has generated these assets, and those assets can bring in a future income. So you kind of future proof yourself by making the farm stronger and bigger…
“When there was no tax to pay, there was no problem. I could leave it to my children, and I could wander up the drive and live in the cottages at the end of the drive and just be about to help out.”
But he said “the game has changed” since the Budget, when Rachel Reeves announced the new burden on family farms.
“Every farmer over the age of 50 now finds themselves having played the wrong game, and finds themselves in a situation in which they can’t fully support themselves in the way that they thought they had been able to,” he said.
He said he has got “nothing, nothing outside of the business”, adding: “The heartache is immense.”
Farmers can choose to exempt their land from inheritance tax by giving it away seven years before their death.
But Mr Bradshaw said this would not solve the pensions issue because the retiree would have to stop taking cash from the business once they handed it over.
“A lot of people talk about the ability to use the seven-year gifting rule, but unfortunately, you can only use that if you can completely take yourself out of the business, if you’ve got savings that enable you to stop drawing on the family asset,” he said.
“And so many farms are not in that position.”
As many as 20,000 farmers will protest outside Parliament on Tuesday, with Jeremy Clarkson and Kaleb Cooper, the stars of Clarkson’s Farm, expected to be among them.
While the Treasury has insisted the change will only affect a small number of farms, critics have warned it could damage Britain’s food security.
Sir Keir Starmer, who is in Brazil for the G20 summit with world leaders, stood firm on the decision, stressing that the Budget included a record £5 billion commitment for farming.
Speaking to reporters on a flight to Rio de Janeiro, he said: “Obviously, there’s an issue around inheritance tax and I do understand the concern.
“But for a typical case, which is parents with a farm they want to pass on to one of their children, by the time you’ve taken into account not only the exemption for the farm property itself, but also the exemption for spouse to spouse, then parent to child, it’s £3 million before any inheritance tax will be payable.
“That’s why I am absolutely confident the vast majority of farms and farmers will not be affected by this.”