Comments on the proposals for Inheritance tax in the Budget, October 2024

We can’t ignore the huge coverage farming has been getting in the media recently. Sadly much of the focus on inheritance tax is I believe a red herring, and far more important issues are being masked by it. I am a huge supporter of the NFU but on this occasion I believe the “Stop the family farm tax” approach is a mistake, and worse still they risk being led on by people and organisations who should only be dined with using a very long spoon.

I am concerned that protests such as the ones in London risk farmers’ previously very high approval rating with the public, second only to nurses. It is essential that MPs need to be lobbied in order to make sure they understand the likely consequences of the budget proposals, and we continue to do so, such as at a meeting Dorset NFU officers had with Lloyd Hatton, new MP for south Dorset, who gave us a very fair hearing across this and the many other issues which have profound consequences for food production in the UK. Unfortunately he is not working in the Treasury or No 10.

The NFU and farming as a whole might better be focused on the following:

1. The very sudden slashing by the government of the remaining 3 years of the Basic Payment Scheme (BPS).  When the original tapered reduction was first imposed following Brexit, farmers were promised that the new Environmental Land Management Schemes (ELMS) would go a long way to replace the loss of BPS, formerly a payment to enable us to produce food below the cost of production.  ELMS would reward us instead with public money for public goods, such as environmental work.  The programme has been very slow to develop, and recently we have even seen parts of it being “paused”.  We face a yawning gap.  Scottish, Welsh and EU farmers continue to receive full BPS cash.  How are English farmers supposed to compete?
2. The unlevel playing field we have to operate on.  The last government signed very generous trade deals with Australia and New Zealand which gave away huge advantages to those who wish to compete in our markets for food, yet the food they produce uses methods and inputs that were long ago banned in the UK.  This is simply a continuation of sickeningly familiar policies which have ever more tightly hobbled UK farmers for years, compared to those who export food into the UK.  2 examples: a) Tighter and tighter regulation of the pig industry over recent decades has steadily driven more and more UK pig farmers out of production, while supermarkets shamelessly continue to import cheaper cuts from abroad produced in ways not allowed here.  b) The ban on neonicotinoid insecticides 10 years ago has reduced our rapeseed production from a self sufficient 2 million tons per year, to around 700,000 tons this year, so we are having to import 1.3 million tons to meet demand.  Where is this coming from?  Countries like Canada, Australia and Ukraine, where no such ban exists and no-one cares that the “bee killing pesticide” is used.  We are importing this stuff, and exporting our environmental responsibility.  Where is any moral lead on this?
3. The pressures on land from numerous directions:  From the purchase of land for inheritance tax (IHT) avoidance, house and road building, business and shopping parks, wind farms, solar parks, pony paddocks, fancy gardens, and most recently modern scourges such as Nutrient Neutrality (see my previous coverage of this here), There are also other pollution offsetting schemes and water company shenanigans, net zero, biodiversity net gain, rewilding etc, all placing greater demands on land.  For this reason it is very unlikely we will see a fall in the price of land, and where land is still farmed for food, it has to be farmed ever harder to make the sums add up.  This has huge consequences for the environment, wildlife, soil and water quality, and is likely to result in the production of poorer quality food.
4. The promised Carbon Border Adjustment, which will add a tax to imported products deemed high in associated carbon emissions.  Eg: artificial fertiliser.  Like it or not fertiliser is a very cost effective way of producing more food from the same area.  The government has decided to impose this tax, which is estimated will add around £50 per ton of fertiliser.  This will obviously increase our cost of production, and the very likely outcome will be similar to the above. Foreign producers of foods grown with untaxed fertiliser (most foods are grown with fertliser) will yet again have an advantage over our home growers.  Same old story.

The Budget in brief:

The government’s budget announced on October 30^th, amongst many other things, contained a number of items that will have a considerable effect on landowners, owners of family businesses, and farmers across the UK. The sad thing is, the proposals in the budget that I cover here will not begin to raise the sums required to solve the country’s problems. The items that will affect farmers include the following:

1. Reduction of business property relief (BPR) previously a 100% exemption of business assets liable to inheritance tax (IHT) held by an individual wishing to leave such assets to their successors on death.  Now reduced to 50% relief after full exemption for the first £1 million.
2. Agricultural property relief (APR), previously a 100% exemption from IHT for land passed to the next generation, now seeing a reduction in the same way as BPR, to 50% of the value of land held by an individual wishing to pass it on, with exemption for the first £1 million. APR and BPR together limited to £1m exemption.
3. Changes to pension treatment such that any unused pension on death which previously could be passed on outside of tax, will now be subject to IHT.
4. Changes to national insurance which will raise the cost of employment particularly for businesses with larger workforces.
5. Drastic shortening of the tailing off of the Basic Payment scheme (BPS), as mentioned at the top, and a pause to the processing and paying out of claims for capital works, which covers anything from tree planting, hedging and fencing, to slurry stores, silage clamps and dry stone walls, all of which are being funded under an increasingly complicated suite of schemes under the environmental land management schemes banner (ELMS). There are now rumours of worse cuts to come. Is it any wonder farmers have been getting agitated?

What are the changes to IHT supposed to achieve?

• The proposed IHT changes relating to land, coming from a Labour government, one might have imagined would be aimed mainly at the ultra-wealthy, who have steadily driven up the price of farmland, as they have for decades sunk their wealth in a hitherto tax-free environment in relation to IHT. Sad to say the proposals as they stand comprehensively fail to address this. Farmland will still sit in an effective 20% band, far friendlier to wealth preservation than full fat IHT at the 40% which apply to any other kind of assets. Perhaps worthwhile to note here that BPR was first brought in in 1973, APR in 1984, at 50% exemption, and finally moved to 100% under John Major in 1993, since when the increase in the value of land has greatly outstripped most other investments
• The rising value of land has wide repercussions across the whole of food production, ever higher prices achieved at land sales have driven rents ever upwards, landowners and their agents expect the rent, or returns from farming, to somehow reflect the value of the land.  Claims that the proposed changes will reduce the price of land are for the birds.
• The £1 million exemption is set so low that it will draw far more relatively small farming and other types of businesses into IHT than it needs to, hence the huge reaction from so many farmers. Many farms, especially smaller ones, function on very tight margins, a huge number of which don’t begin to provide a return to match the theoretical value of the land, which has inflated over the decades completely out of the control of its owners, due to the pressures related above in paragraph 3
• The proposed changes send a confusing message to business owners, they make absolutely no sense up against Labour’s endless proclamations of growth growth growth for one moment.  You won’t get growth if you de-incentivise the entrepreneurial and risk-taking sector in such a way.  Who would start up a new business in such a climate?

Some will celebrate the proposals; why should the children of those fortunate enough to own hugely valuable assets like land be able to inherit them tax free ? I would ask them to look a little closer and ask who would they want to be responsible for producing their food; a larger number of highly motivated individual family run businesses, or a tiny number of huge (probably corporate) landowners, who would be the only ones who could possibly afford to buy land in the future?

Many business owners will for the first time face IHT at scale with the loss of much of Business Property Relief, and broadening the campaign would draw so many more family business owners in, we should be working with family businesses across all industries, not just our own. We need to tread with care though, a modest tweaking of the exemption thresholds, to say £5 million, and a fairer treatment of say the over 75s to give time to sort their affairs, would take the wind out of the APR protests, but all the other problems would still remain.  Hence the urgent need to adjust the focus of the argument sooner rather than later.

Let’s be honest, anything can happen, and none of us know what the result will be.  Haven’t we seen that play out rather well since that infamous vote in 2016? Maybe we can reassure ourselves that there may at least be a little bit of new of money available to invest in our threadbare country.  Whether a government like this is capable of using that money wisely is, I admit, another question entirely.  

Many farmers have been heavily invested in environment schemes for decades.  With the faster removal of BPS, and other signals, we now fear that it will be impossible to sufficiently make up what we lose through BPS with ELM schemes.  For many farmers, the only option will be to drive the land ever harder, risking driving a coach and horses through the government’s claimed environmental ambitions. We have seen absolutely no hint that the government has any well thought out plan for the future of food production and security, or how to service their commitments to the environment. Cumbrian shepherd and author James Rebanks has written very intelligently here about the current mood, he is even more gloomy than I, believing that the progressive greener dream for UK farming has died.

James has become an icon for the environmentally inclined farmer, with his eloquent writing and broadcasting, but being a hill farmer really is at the sharp end of the massive betrayal that is underway. There are far fewer options for hill farmers to engage with any of the ELM schemes in order to try to compensate for the loss of BPS, than there are for lowland farmers.

For more of James’ output, a more recent article, on the future of UK food production can be found here: https://unherd.com/2024/12/a-food-apocalypse-is-coming/. For a much longer read see his books The Shepherds Life, and English Pastoral.

While we are on the links, here is one more interesting piece, by a tax specialist, who has given more thought than many to the IHT issues, and his arguments about how many people will be badly affected by the proposals are well worth exploring. https://taxpolicy.org.uk/2024/11/24/how-to-stop-iht-avoidance-but-protect-farmers/

OK can we see a way through this?

Government

Solution 1: If farmers were allowed to operate on a fairer playing field we could all be increasing production, employing more people, paying more income tax and national insurance, trading locally and internationally, stimulating the rural economy, and becoming less reliant on public money.  

Solution 2: A more effective way in which the government could use APR reliefs would be to use them to persuade more landowners to let out more land, and on longer terms.  There is a dire shortage of land available to rent. For example 100% relief for minimum 20 year lets, 50% for 10 years etc.  Sadly so far the NFU and the TFA (tenant farmers association) have failed to persuade Ms Reeves of the value of even this.  

Solution 3: Tweak the exemption levels, and convince us you are only going after the ultra wealthy.  You know darn well the amounts you will raise from smaller landowners will be tiny. 

NFU

Priority 1: Find a new slogan and approach to clearly embrace all the issues facing us, not just APR.

Priority 2: Hammer on the doors of the Treasury until the chancellor agrees to meet and get her to explain to us what she is trying to achieve and why she thinks any of her ideas will work. (She has to date refused to meet the NFU).

Priority 3: Remain positive, tell the whole story over and over and over, with passion, eloquence and authority.

Back to Nov-Dec 2024