To wonder why agricultural land is worth so much?

[MrsBennetsPoorNerves]

This is a genuine question because I'm trying to understand.

I keep hearing farmers say that farming is very unprofitable, that even huge farms worth several million pounds produce next to no income, and that farmers would be forced to sell land in order to pay the tax bill, thereby making the business unviable. Hence the opposition to inheritance tax.

But if that's the case, how is it that these farms are worth so much in the first place? Surely, if it's such an unprofitable business, you would expect the value of the farm to drop to reflect the fact that it's actually a very unattractive investment?

NB I'm not trying to score a political point here, I do really want to understand.

Wondered the same myself - following with interest. I was wondering if it was the value of land in terms of other uses (housing development, industrial etc)

Building houses = make lots of money ££

farming land = doesnt make lots of money

Land is valuable - it is literally owning part of the country 😂And the biggest landowners are very very rich and keep the prices high.

Most commercial assets are valued according to their yield - how much income and profit can be generated by owning them. The value of farm land has become dissociated from that (and substantially inflated) because of the Agricultural Property Relief for IHT. Even if the land is never used for production, or yields very little, it has a value because of the fact that it can be passed down free from IHT (and even after the reforms at half the rate of IHT on other assets).

The reduction in the APR is likely to cause agricultural land prices to fall.

"and that farmers would be forced to sell land in order to pay the tax bill, thereby making the business unviable. "

Where would you grow crops or graze cattle if the land is sold? It may be worth a lot of money but you can't actually do anything with it if you are to continue as a farm. Yes, it's a valuable assessment, but it's also one that is used and is necessary.

I imagine part of the reason is that prices have been pushed up because of the IHT exemption. Clarkson back in 2021 said avoiding IHT was "critical" to his decision to buy his farm (of course he's now said that was all just a joke, despite also listing it as a reason for buying in 2010 🙄). And I doubt Dyson has much interest in agriculture either - I could be wrong.

Any asset you can pass on without any IHT will go up in value.

I'm saying that's all the value. But it will have increased it.

Because there's a finite amount of it - gold is valuable for a similar reason (and arguably less useful, though it is now used in electronics). What farmers earn and what they own (unless tenants) has been out of sync for a long time now.

On November 21, 2024, Farmers Weekly reported that the price of milling wheat was £208.80 per tonne. Something like oilseed is about twice that.
In the United Kingdom, the wheat yield in 2023 was 8.1 tonnes per hectare. Usually one crop per year (I'm ignoring crop rotation for this)

Therefore the yield per hectare of wheat is ~£1,600

Percentage of farms in England: (ha)
<5 5<20 20<50 50<100 ≥100
13% 26% 20% 17% 24%

So, as the farm sizes are (roughly) distributed equally, lets say the average farm is 50 ha.

Income from 50 ha wheat is therefore ~£80,000

Cost per ha to purchase/sell land is ~£25,000... so easy to see why 'a bird in the hand' mentality is creeping in with farmers. A farm of 50 ha = £1.25 M. Most people would rather sell that and have a guaranteed cash in hand, rather than 'maybe' making £80,000 each year (weather, pests, disease etc, permitting).

I get the point you are trying to make: it’s hardly worth running a medium sized farm for a break even of 15+ years of toil.

and you didn’t include the costs in your analysis either

A major driver of land values is rollover. If agricultural land is sold for development the money can be ‘rolled over’ to reinvest in agricultural, thus avoiding capital gains. This has lead to distortion of the market and localised hotspots where there has been a lot of development.

Add in people like Dyson, attracted by inheritance tax benefits, and the city/tech/law/celebrity folk looking for life style, capital growth and APR (agricultural property relief) further distort. The latter especially in areas of outside natural beauty not too far from London.

The majority of farmers who’ve bought land the last 10-20 years have done it on the back of selling for development.

Land prices may well drop in the short term in light of the coming changes. However, it’s v v naive to imagine that this will enable anyone without huge sums of money behind them to enter farming.

The big house building companies and an inefficient planning system don’t help either.

We’re a small country, with increasing pressure on the limited resource that is land.

Its’s hugely complicated, the Conservatives were disastrously ineffective. Current incumbents: my most generous assessment is well intentioned but not particularly well informed, with an inadequate grasp of the complexities.

I was wondering exactly the same!
If the land is valued as per its use for housing/ building prospects, rather than actual production as farms. Which would be wrong.
Now, raising IHT may reduce the value of farm land? So that passing the farm to someone that would continue to farm will not be expensive. I see that as something good. Anyone is seeing an issue with this?

Bringing the value of the land more closely into alignment with what someone farming it can expect to make from it makes sense, and brings "entry barriers" down. There will be some problems though - for examples farmers who have borrowed money secured on land at higher values may have problems if the land values fall.

It is a very thinly traded market; only 2-300 farms 'publicly marketed' each year apparently, and farmers only account for about half of buyers (according to Strutt & Parker summer 2024 farmland report). Doesn't take many 'lifestyle' or inheritance tax driven buyers to impact the market I guess.

So what Labour have done is make the purchase of land by Dyson/Clarkson multi millionaire types, less attractive so the price will fall which will benefit farmers who actually want to farm the land.

See I’m not sure about it all. Because while I completely get the attraction of passing something down with no IHT it’s not actually “worth” anything to the person inheriting it unless it’s making a profit. Or unless you can sell it to someone else fairly quickly for cash.

dh owns a few fields which are worth about 100k, he inherited them over 20 years ago. They have been of no benefit to us at all so far. We don’t farm them at all. Someone we know keeps some horses on them. If anything they have cost us money for drainage repairs, etc. having an asset might be great but it’s not money in the bank.

i guess one day we could maybe sell them, but if they don’t bring in a profit who would want to pay for them?? We have a vague hope we might get planning permission for the fields which looks increasingly likely as time goes on (the village has extended around our fields) and then they’re likely to be worth even more than the current value.

But can’t see Clarksons very arable large fields getting planning permission for housing. So if one day his kids need to sell some fields to pay an IHT bill then you run the risk firstly of nobody wanting/needing a few fields…..so they then can’t pay the IHT without selling the whole farm. How many people can afford a farm like that? Multiply that by all the farms across the country every time a farmer dies. I don’t see people lining up to be farmers at that level. Or a few fields are sold and you end up with more and more smaller farms which raises the risk of less profit and more unproductivity.

I guess the land Dyson owns might make more of a profit as its prime Lincolnshire agricultural land.

Income from 50 ha wheat is therefore ~£80,000
Cost per ha to purchase/sell land is ~£25,000... so easy to see why 'a bird in the hand' mentality is creeping in with farmers. A farm of 50 ha = £1.25 M. Most people would rather sell that and have a guaranteed cash in hand, rather than 'maybe' making £80,000 each year (weather, pests, disease etc, permitting).

Just to clarify for some people, the maths above is looking at the price you can sell the wheat for. To have a better way to look at this, you really need all the costs of producing that wheat e.g. machinery, fuel, fertilisers, staff wages, seeds etc. Oh and of course there's the farmer themselves and their family to support. Than there's the overheads of the various legislative work that a farmer needs to do, depending on what the farm produces. So you aren't talking about a salary equivalent of £80k by any means!

Plus the smaller a farm is, the higher proportionally these costs are as there's no bulk buying and you still need at least one of everything whether you have 5Ha or 50Ha. The bigger farms can justify the cost of much larger machinery too, which can do the work much more efficiently.

The impact of disease is also much higher on livestock farms. Not only do the farmers have to pay for inoculations and disease testing, but any illness means that animal is slaughtered at cost to the farmer and no movement is permitted to/from that farm for a significant length of time - meaning they can't even sell their produce.

Land that has not been built on close to existing development is becoming scarce . Land can generate an income . Planning permission may be given for change of use . Land may be bought speculatively for future development. The denser people are packed into together the more attractive ' space ' is .

Thank you all for your comments. Still trying to get my head around the issues.

Re the land being valued more highly because of its potential for development... could this be resolved by whacking on a very high tax rate for any future change of use?

If all the IHT avoiders are pushing up the price of agricultural land by artificially inflating demand, then surely it's a good thing for farmers in the long term to disincentivise this?

I presume that the likes of Dyson and Clarkson aren't actually farming the land themselves. So would it make sense to apply a different rate of tax for those actually running family farms themselves vs those who just lease it out or employ others to do the work? Or could we keep tax-free inheritance for farmers who are actually farming the land but charge the standard rate of inheritance tax as soon as they sell the land or change its use?

It is simple supply and demand, no one is making more land.

Purchases of land are not always farmers, estimates of recent years sales in many estate agents who specialise in land have the figures somewhere between 25 and 50% of land purchases, dependant on where you are, are private non-farming investors.

Supply of land to buy each month/year is very limited because farming is often a very long term business. I know one farm that has not been for sale since the 12th century, it's still in the same family's hands. They have documents going back that far for the core part of their land. This is a small holding and on flood plain/water meadow system so not useful for anything else.

Supply of land near urban centres is more desirable and more highly priced.

Add in tax relief for all who own land, not just land that is farmed, and land is even more desirable to private purchasers.

Nothing complicated about it ... limited stock + high demand = high prices

This is a genuine question because I'm trying to understand.

Sure.

I don't see why that's so hard to believe. It's an issue most people would have very little knowledge on, and is suddenly all over the news. Why would it be the case that anyone asking about it is being disingenuous?

So surely the solution is to take away any and all incentives for non-farmers to buy the land?

@MrsBennetsPoorNerves

Why would you want to increase land taxes . Not everyone with land is a Clarkson what about those with a couple of pony paddocks or someone wanting to build a home for their family .
Not everyone has a gazillion acres .

Thank you. I am actually being completely genuine in wanting to understand the arguments. Can't really be arsed to engage with the pp who has nothing constructive to add to the thread.

Yes, but what is proposed is still a better deal than not so it doesn't prevent private investment and it doesn't help farms whose land value is over priced.

And no matter what anyone says, that's the truth of it all. The policy is shit for everyone and solves nothing.