In the Chancellor's Autumn budget of 2024 changes were made to Inheritance tax Relief that reduced this relief on the value of both business and agricultural assets to £1,000,000. Whilst some estates will benefit from other personal allowances depending on the beneficiary and relationship status in my informed opinion it is highly unlikely that any estate will benefit from Inheritance Tax Relief greater than £1,7000,000. It also needs to be considered that the government announced that from 2027 they intended to include the death benefit and value of any pension to a person's estate. Thus those those business people and farmers that had provided prudent succession plans find themselves in a trap both from 2025 and 2027 where there largest assets of pension, home and business all risk being crippled by inheritance tax bills to the point of failure of business continuity to the next generation. Especially in the event of early death.
To make matters more difficult existing provisions using trusts and incorporation risk losing that benefit due to the provisions made by the Labour government.
With respect to farmers the current Labour government claimed that their provisions were both generous and protected family farming businesses. I KNOW FROM MY CONSIDERABLE EXPERIENCE THIS IS NOT THE CASE. This prompted me to send the following email to my MP in Northumberland, David Smith of the parliamentary Labour party on 3rd November:
THE CHANGE TO INHERITENCE TAX RULES ON FARMS IS NOT FAIR AND BALANCED
On 1st November your colleague Steve Reed had an article published in the Telegraph stating that the new Labour policy on inheritance tax on farms is fair and balanced. In the article he states:
“Only the richest estates will be asked to pay – not small, family farms as some misleading headlines have claimed. Look at the detail and you’ll see the vast majority of farmers will not be affected at all. They will be able to pass the family farm down to their children just as previous generations have always done.
This is a fair and balanced approach that protects family farms while also fixing the public services those same families rely on”
In my informed opinion this is a gross mistake and these words reveal a great misunderstanding of what the reality is behind small family farms. I believe the ministers view is from a misunderstanding and wrongful briefing of the statistics. This results in an unawareness of winners and losers.
I ask you to consider the figures used by DEFRA to describe farm sizes. These state that the average farm size is 82 hectares (202 acres) and about half of all farms are less than 20 hectares (49.4 acres). The primary source of these figures will have been the old CAP Single Farm Payment returns which will show many individual “farmers” that are not in fact farmers.
Many, indeed a considerable majority in many areas, of agricultural holdings of 50 acres or less are held by individuals who are not actual farmers. They are often held by people who do not farm but wish to benefit (in the past) from Single Farm Payments, countryside stewardship schemes, and Agricultural Property Relief whilst in some cases enjoying the ability of a home in an adjoining house fulfilling their rural idyll. There are some valid farms of this size, obviously dependent upon farm type and location.
I am concerned that Mr. Reed has no understanding what a small family farm is. The reality is that with even 10 years to pay this policy will starve many family farms of cash upon death forcing sale or shrinkage of small family farms. It needs to be considered that working capital requirements are huge often £250 or more per acre of wheat and £2500 or more per acre of potatoes. The returns on this working capital are both uncertain and low.
Many years ago my first portfolio as an Agricultural Bank Manager comprised 440 farming clients that were deemed “small farms” in the Eastern Counties from Lincoln down to Bungay in Suffolk. They varied in size from 2000 acres to 20 acres. 80 of them were not proper farmers, but people exploiting SFP, APR and Environmental Schemes for their own enrichment. This they did using a combination of growers licenses and shared farming arrangements to make them look like farmers. The 20 acres organic veg grower with a box scheme was as much a small farmer as the 2000 acre arable farm. Indeed 2000 acres was deemed a minimal viable unit by land agents to enable enough income for a traditional farm. In between were a great variety of other farms. The same is true in Northumberland.
I do agree that Agricultural Property Relief needed reforming, but this policy will result in increased gentrification, abuse of smaller land holdings with non-farming motives and a contraction of rural opportunity. The only good thing I perceive is that it will make people focus on proper succession planning.
I ask that you consider the authority of my real life knowledge, I have visited over 4000 farms throughout the country either professionally or personally. I have listened to farmers at their worst moments in their lives and celebrated their achievements as an Agricultural Bank Manager and a caseworker for a farming charity. I have worked casually on six different farms and have a deep insight across the food and farming industry.
I welcome a response from you and/or the minister in due course.
Kind Regards
This was his reply:
Thank you for your email about Agricultural Property Relief and the Government’s approach to farming in the recent budget. Prior to the budget I was engaging with North Northumberland farmers on a range of issues, including; sheep farming, access to land, energy costs, trade deals, mental health, the SFI and Basic Payments Scheme, and the total envelope for farm subsidy, and I will continue to do so.
I was very pleased that the Government has committed £5 billion to the agricultural budget over the 2024-25 and 2025-26 financial years, which represents an increase on the £2.4 billion in 2023-24 set by the last government. I know that there was some concern that the budget would be reduced, given the failure of the last government to spend the budget, and so I am happy to see the full agriculture budget maintained.
However I also appreciate that the announcements this week on APR have caused concerns for some farmers. The announcement of a change in a thirty year-old tax regime from April 2026 has clearly led to a significant number of questions, some confusion, and some frustration for the farming community in Northumberland. I recognise that North Northumberland contains a number of large farms that surpass the new £1m 100% relief rate.
As you may know, the standard nil-rate band, residence nil-rate band, and exemptions for transfers between spouses still apply, which means some farm owners, including those who are married, will receive the 100% relief rate until over the £2 million threshold (this also does not account for Business Property Relief, which will further benefit a number of farms). Transfers to individuals more than 7 years before death will also continue to be untaxed. And any Inheritance Tax due can be repaid over ten years.
Given these variables, I would strongly encourage you to take advice from a tax expert with regard to your own circumstances before drawing your conclusions; much of the media and some of the political commentary on this announcement has in my view been alarmist, and has limited value in shedding light on how the vast majority of family farms will be impacted in the long-term, let alone the short-term.
We know that some of those using APR are not family farms, but wealthy landowners or city residents seeking to buy up land in order to take advantage of a system designed to support farming. It’s tough to see how the current system could have continued, especially with the country so short of money for crucial public services, including our local doctors and schools. The budget has increased obligations on businesses across the board.
Yet I also appreciate that farmers juggle a number of pressures and this is an unexpected one that has raised a degree of uncertainty for some larger family farms. While we must ensure that taxation is fair, no-one wishes for our national food security to be threatened, or for a way of life to be undermined in any way.
With this in mind I am planning to speak as soon as possible with local farmers to listen to constructive suggestions that I can take forward to the Government, and I’d be keen to receive any further update from you on how the changes to APR may affect you and your farm.
Kindest Regards
David Smith MP
North Northumberland
Dissatisfied with this response I replied thus on 6th November 2024:
Dear Mr.Smith,
Thank you for your speedy response. Unfortunately you have failed to read my letter and the points made and your office has given a stock "party line" response.
If you read it I was giving information that explains why this is a policy mistake made out of ignorance. Sadly it appears that we have a government not fully aware of winners and losers in the rural economy, or worse still do they care?
I emphasized in my letter in a non-partisan manner my extensive experience. Sadly this has been screened out.
I do understand the pressures on a political office and have sympathy with them as you have a new office, but you do need your correspondence dealt with in a more individual manner if the voices of "demos" in democracy have any value.
Kind Regards,
Andrew Elsden.
I have a low expectation of further response, but will update this post in full with any further correspondence. It is not that Agricultural Inheritance Tax Relief does not require reform, but rather this is a poor policy and the reasoning behind it fundamentally flawed, or worse still ideologically driven.
In the meantime from 12th to 19th November I will post daily about this issue.
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