The Inland Revenue is poised to levy a 40 per cent inheritance tax on some farmhouses, farming land and other farm buildings, reports the Times.

Rural campaigners believe that the move could mean that children will be unable to inherit the family farm.

Forum Response: Royal Agricultural Society

Angela Lea, head of policy and information at the Royal Agricultural Society, told ePolitix.com: "Agriculture has been in recession for the last five years. The business of farming and land use in England has changed dramatically over that period. In most cases farm businesses are being kept afloat by income from non-farming enterprises.

"Many farmers are selling food for less than the costs of production so non-farming income is essential. The tax situation does need to be clarified."Forum Response: Countryside Alliance

A spokesman for the Countryside Alliance told ePolitix.com: "The Countryside Alliance is disappointed with the Inland Revenue's decision to levy a 40 per cent inheritance tax on some farmhouses, farming land and other farm buildings.

"This will have a detrimental effect on farmers wishing to diversify into non-agricultural enterprises, by discouraging them from doing so.

"This comes at a time when diversification is widely seen as the way forward for many in the industry, and indeed the government is actively encouraging farmers to change and adapt in their businesses and enterprises.

"It could also lead to farmers' children not being able to take on the family farm, at a time when the industry desperately needs 'new blood' and younger farmers.

"This is a further example of government saying one thing but doing another.

"It also indicates a lack of understanding of the issues and a failure of government to 'rural proof' its policies, as it has promised to do."

Forum Response: Country Land and Business Association

A spokesman for the CLA told ePolitix.com: "The CLA is concerned about the impact of the current inheritance tax rules on the ability of agricultural businesses to diversify into other activities. With incomes from agriculture at their lowest level since the 1930s, such diversification is crucial to the future sustainability of the rural economy.

"When a farmer dies, the continued occupation of the main farmhouse together with its surrounding farmland is subject to exemption from inheritance taxthrough agricultural property relief. The relief provides up to 100 per cent exemption on the agricultural value of any property which has been occupiedfor the purposes of agriculture.

"A farmhouse is regarded by the legislation as being agricultural property provided that it is occupied as such and that the farmhouse is of a'character appropriate' to the holding. Therefore, where there is no change of activity in relation to the agricultural land and buildings, the family could expect to inherit the estate without the burden of inheritance tax to be funded from future profits.

"However, where a farmer has changed the nature of his business activities, this can result in increased inheritance tax liabilities on the farmhouse.This is because diversified business activities will diminish, if not eliminate, the level of agricultural activity being directed from the farmhouse, and agricultural property relief from inheritance tax may therefore no longer be due. There is no equivalent relief for houses under the rules granting business property relief from inheritance tax.

"In order to address this problem, the CLA proposes that the definition of agriculture be widened only for the purposes of the legislation governingagricultural property relief and only in the context of a single business subject to unified management. This would enable a farmer or landowner running an agricultural business to take up opportunities for diversification without fear of compromising their inheritance tax position."