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.

I'm suggesting that we should find ways of increasing tax for those who have agricultural land that they aren't farming. If they are using the land for other reasons, I don't see why they should benefit from the preferential IHT arrangements.

Yes, I can see that logic. So wouldn't it be better to make agricultural land taxable at the standard IHT rates and then provide generous relief to actual farmers to enable them to keep farming the land?

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?

Because there have been numerous threads about it with detailed explanations which the op could’ve read.

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?

Unfortunately the high price of land means that when a farmer dies, the family will need to raise the inheritance tax money somehow.

For a standard family above the threshold, chances are that adult children are already gone and there's usually the chance to sell the big old family home and downsize without that impacting on your livelihood.

In farming at least some of the adult offspring will usually still live on the farm, often raising their own families in a different house on site - this is so those of the next generation who want to, can live close to work (which often starts at silly o'clock or even all-nighters, especially for livestock farming). Certainly for smaller i.e. non-massive corporate farms, the income is usually sufficient to support the family living there and in a good year maybe put a little aside for the proverbial rainy day (e.g. drought, flooding, pests, TB, Foot & Mouth outbreaks etc). So to pay a big chunk of inheritance tax on the farm they will need to sell off say 20% of the land - which means next year there's 20% less income to support the same number of people. Add in the potential loss of the economies of scale, and you can see how that is no longer viable. Then the same thing happens when the next generation die.

So maybe in a hundred years or so it might help farmers looking to increase their land, move, or newly come to farming, for the current few generations of farmers this is completely devastating. They will lose their homes and their livelihood, and having spent their entire lives working on the family farm they are unlikely to be qualified for any other job.

More expensive previously because it was a bit of a tax dodge, and if you sit on it for long enough eventually it may become buildable 🫰🫰

There seems to be a bit of defensiveness from farmers around discussing land values in this context because I'm guessing in many cases their objection to the change to Agricultural Property Relief is not the possibility of them paying IHT (most still won't) but about the value of their land dropping (from an artificially inflated high) but they can't come out and say this.

Yeah, I do understand that argument. What I've been struggling to get my head around is why farms that are producing such low profits are worth enough to be over the IHT threshold in the first place.

Presumably, going forward, most families will be able to avoid the tax by transferring the land to their kids at an earlier stage. Would it help if the government provided some sort of relief to families who are actually farming the land over the next 7 years or so, where they haven't had an opportunity to do this?

Agricultural land is worth less than land that is given the go ahead for property development however prices have beeen rising recently because rich people and businesses have bought and are buying land to avoid paying inheritance tax as they can rent it out as agricultural land and get exempt. also I think there is some other tax they can avoid- can’t remember what it is though. However for farmers most are tenant farmers so rent the land from a big land owner or they’ve had it in their family for generations so never paid for it and it would have been very cheap then. Some farmers don’t even make profit each year and are sibsidiwed by the government to keep going as they are vital eg dairy farms. Sheep farming is very poorly paid in returns, 22k is the average. Crops is where the money is as but it’s very dependent on the weather- some years you might just cover your costs. Farmers are land rich and cash poor. The farmers that have done well are the ones who have multiple fingers in multiple pies- eg they might have converted some barns on their land into holiday lets. It really angers me when people think farmers are rich. There are rich people driving range rovers in the countryside but most are not farmers!!

That person offered nothing, so yes, they can fuck off. I'm happy to read and engage with constructive responses. Not interested in snide comments, thanks.

…it’s a tax dodge .. and the rich folks that the tax dodge benefits have whipped others up (I think it’s more about being annoyed at the election result). Odd really, as it’s the same people who supported Brexit, which has cost the farming industry hundred of million, and is far more damaging than any IHT changes (which won’t effect a large % of farms)

If they are planning to carry on farming their land and hoping that their kids will do likewise, the value of the land should be irrelevant, really. It only matters once you are looking to sell it?

Depends on a huge variety of factors, what is farming, is equestrianism farming because some think it is? Do the rates help rural businesses that serve agriculture like haulage and feed stores which also grow a portion of their own crops too? Some of these businesses will have other customers so do they have a sliding scale dependant on the amount of farming business they have? How about the farms that offer holiday homes, camping, off roading etc for part of the year on a portion of their land?

What accounts for agricultural production? Farms that crop or would it include farms that specialise in livestock or plant breeding that ultimately create little to no food crop but do serve the industry in terms of supplying farmers with a new variety of wheat or apples or bloodlines? Lowland livestock farms that buy in animals born on hills but help them to gain weight before they are passed on to finishing farms?

Does it apply to land owned by food processors who take in lots of agricultural produce and convert it into dairy, chutney, airline meals.

What about farms that only produce animal feeds or oils for bio fuels?

Would woodlands come under agricultural use or only if they produced edible mushrooms or foraged fruits? Coppice or timber?

What about factory farms and super farms both are ndesirable in the business but exist, should they and their billions be exempt entirely?

Not so simple a task when you delve in deeper into land use in this country.

I don't have the answer to it and I don't feel stupid about that because no one else has a decent solution either.

Wouldn't the tenant farmers benefit from a drop in land value if the tax avoiders stopped looking at agricultural land as a form of investment? Either through lower rents and/or fewer barriers to buying their own land?

@DanielaDressen if your DH had sold the fields when he inherited, he hopefully would have got their full value, say £100,000. Whereas if he’d inherited anything else worth £100,000, IHT would have reduced it to £60,000.

Yeah, I get that it's incredibly complex and we might not be able to come up with a perfect solution. But it still makes sense to me to come up with some sort of system that would support those involved in the production of our food. I wouldn't personally include stuff like equestrianism etc but I'm sure that better brains than mine could be involved in deciding what should be covered and what not.

@MrsBennetsPoorNerves for starting this thread, I have missed the other discussions and it's an area where I'd like to understand better as well.

Looking to the future, I'm also wondering whether farming families will be able to make use of exemptions for gifting property within the family, providing the giver survives for 7 years after the gift. This obviously isn't going to be helpful for those families where the tax bill is triggered in the next few years, but surely this is a good long term solution?

If your not a farmer and have a lot of money you want to pass down without being for charged inheritance tax you can tie it up in land claim it’s farming land and not having to pay. Many people and businesses have cottoned on to this in the past ten years and drove land prices up and bus the government is trying to stop this loop hole but instead it’s punishing the wrong people- actual farmers !

No, because £100k would be below the standard IHT threshold anyway. Though obviously, tax might have been payable if there were other aspects of the inheritance that pushed it over the threshold.

And rake in a lot through farming subsidies.

Farms are more than just land. Buildings, animals, and equipment. A combine harvester £500k, tractors £100k. Trailers, ploughs, GPS systems for ploughing, seed planting machines. I think one problem we have is that Pre Covid, Farms became reliant on a cheap supply of labour from across the world, so why spend £1,000s on updating your equipment when you have an unlimited supply of cheap labour? The problem now, is why spend that money on equipment, if when you die the government tax your children on its value? We need our farms to be efficient and modern, and the IHT policy will not encourage that

You say “instead”, implying the non-farmers are not going to be affected? Can you explain why?

maybe however because the new law doesn’t distinguish between real farmer and non farmer. What I think you will get is if the landlord is going to have to pay a load in inheritance tax maybe they might pass a lot of the cost into the tenant farmer or worse sell the land so the tenant farmer can’t even farm. Not sure! But for farmers that own the land they are completely screwed.

It's not, planning laws are very strict. If you have site that might get planning, that's a potential fortune but they're few and very far between. Most is greenbelt and IME worth very little, but it varies according to quality of land etc