Decided to write a post to kind of myth bust a lot of what is being said around the agricultural Inheritance Tax issue. Because this issue is important to EVERYONE and will affect all of us.
It’s going to be a long post but please read it in full.
What has changed?
So with the budget the government has removed both APR relief and BPR relief from all businesses.
APR = Agricultural Property Relief - this covers the land, the buildings and the farmhouse.
BPR = Business Property Relief - this covers the machinery, equipment, livestock, consumables such as seed and fertiliser and crop in the ground.
Now the first million of combined assets from both APR and BPR is IHT free and anything over 1 million is taxed at 20%.
Under certain conditions it MIGHT be possible for SOME farms to get up to 3 million tax free. But that doesn't work for all. It’s a case of if your circumstances meet the exact criteria your ok if not you won’t get the full 3 million.
When the government talk about 500 farms per year being affected they are only talking about the APR proportion of the tax. They have deliberately excluded talking about the fact that BPR is also included and taxed.
The NFU are saying that 75% of family farms will be affected.
- it will also include a significant number of tenant farmers as they still will be affected by BPR.
BPR will also affect a number of other industries as well.
Haulage firms, Contractors and any businesses with high asset values comparative to income will be badly affected.
At the same time subsidies are being cut by 70% in some cases
Tax on fertiliser is going up by £50 per ton.
Tax on domestic vehicles is going up over 200%
NI for employers is going up.
Why shouldn't farmers pay tax like every other business?
Because quite simply farming doesn't work like any other business does. Most businesses work out their pricing by working out the cost of production + profit and tax. They are in control of who they sell to. When component prices go up so to does the selling price.
Farming doesn't work like that. Farmers have little to no control over prices.
The combination of global markets, supermarket competition and subsidized food control the prices.
At the same time input costs and yields are not controllable either. Weather conditions play a huge role in how good the harvest is. Unless you are able to grow all your feed for your livestock there can be huge variation year to year on feed prices.
Farming is a high asset value to low income business. It is unique purely because it is a rubbish business model. But it is a necessary business. Without it quite simply we would have no food.
Why do farms make so little return?
A lot of the foods you buy are subsidised by the government and has been for decades.
if we had to pay the full costs we would have an even more serious poverty issue than we have already.
After the war in the 1950s we had a serious issue with malnutrition and issues like rickets. Food was short and expensive. The country on its knees after the horrors of the 1940s. In order to combat that the government subsidised lots of essential foods. So the public were paying artificially low prices for things like milk. They then paid the farmers a subsidy to partially make up the shortfall
For context in the 1980s people were paying approximately 25% of their household income on average on food.
Today it is approximately 13% so half.
A pint of milk was equal to two pints of beer
Now beer per pint is 13 x more expensive than a pint of milk.
If people want farmers to go back to paying IHT then they will need to double what they pay for food.
Can you afford that? Can everyone you know afford it?
It’s important to note too that even with subsidies farmers still do not get the full value of what they produce.
What about people buying land to avoid paying tax?
The likes of Clarkson and Dyson buying land is a red herring. That land is still in the business production of food. It's doing what's needed.
Many many big landowners rent agricultural land out at very reasonable rates for tenant farmers. They do so because they don't need the money for the rent (it needs to cover its cost not much more) because the payoff comes in the form of reduced IHT.
I personally know a farmer who rented land for 17 years from a landowner. Then when landowner was considering selling up he sold it to the farmer at a really good price and guaranteed the farmers mortgage!
That said though this budget will do nothing to deter those who seek to reduce their IHT bill as it will still be the cheapest way of reducing IHT bill.
But farmers voted for Brexit
farmers voted for brexit in no greater numbers percentage wise than any other profession.
Don't make sweeping judgments without actually knowing the FACTS.
Farmers are no more responsible for brexit than any other profession
What about Gifting the farm?
The trouble is you don't know when you're going to die.
If you gift it on then you can't benefit from the farm in anyway after that. So you can't pass it on and remain living in the farmhouse for example. Even if the person you pass it on to is also living there.
And what if people don't die in the right order. Farming is considered to be the most dangerous profession in the UK now. What if the oldest generation pass it on and the younger generation die first?
Putting land in trusts is also complicated. For large landowners that is probably what they will do. So therefore the very wealthy will still avoid IHT.
But for the majority of farms putting it in a trust doesn’t work because once it’s in a trust you can’t borrow against it. So you can’t raise a loan or mortgage against it. This will slow or halt development and progression.
What are the potential consequences of this?
If we lose too many family farms due to this tax then they are likely gone forever. Other farmers won’t be able to buy up all the available land - they simply don’t have the money especially now.
If food production here reduces we become even more vulnerable to the instability of global markets.
At best it would mean price hikes at worst if there were to be another major war or global disaster we could have serious food shortages. You only have to think back to the panic in 2020 with covid to see the potential for chaos.