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.

It seems to me that the current IHT policy might actually be detrimental to farmers in any case, as it prices them out of the market for agricultural land.

Sorry , i mean it will effect the non farmers who have the land too but the people aka the actual farmers who I think personally should have to pay it will be punished aswell. Should have said as well instead of instead ( grammar!)

No because to get by a lot of land is borrowed against. Lower the land prices too quickly and that borrowing becomes a very high risk and economically disasterous for the farmer. These people unless they are in dairy farming often only get paid once or twice a year so borrowing becomes the norm.

Also your benefactors cannot benefit from the land in any way once gifted. So they would have to pay full local rates rent for housing on that land or buy a home. Rents and house prices in the same areas where farms are over valued, are also over valued.

I believe the threshold for IHT to start is 3 million pounds. So small dwellings are unaffected.
People like Clarkson would be affected.
The question is whether farms that happen to be over the 3 million pounds in land value are productive enough to pay said tax or the prices on them are inflated. If inflated, will these policy help to bring the land prices in line with their productivity as farms?

And, actually, that Clarkson is heading this movement inclines me to think the policy is right. Just because Clarkson is a proper clown.

And that's why we run into problems because no one even those with better brains than you and I can come up with a workable solution.

Oh OK, that makes sense.

It seems to me that we really have to find a way of taxing those who are investing in agricultural land with no intention of actually farming while protecting those that are actually engaged in the business of producing our food.

Someone said above that the majority of farmers are tenant farmers rather than landowners. I had not been aware of that, but how exactly do they make ends meet if they don't have the option of borrowing against land etc?

Really?

I can't see how even an imperfect solution along these lines wouldn't be better than what we have now?!

I think Dyson gets a bad rap actually. He does "farm". He also uses the farm to innovate farming techniques, which benefits all farms. He runs a carbon neutral farm for example. Not saying he doesn't also benefit from tax reliefs, but he isn't just sitting on land.

Yeah, Clarkson is not a good figurehead for the farmers...

They work two jobs, have a business on the side, lorry driving, accountancy, hairdressing, you name it a farmer somewhere does it, or a partner works off farm and has a higher salary or you both work two jobs.

I've worked for plenty of farmers who work two jobs utside of peak season when you could be working 130 hours a week. 60-70 is the norm but many of us have had a side hussle to cover for the fact it is a low paid occupation.

On the borrowing part, which they will loose indeed if the land value goes down, should not they borrow on the produce to be sold, rather than the land?
Otherwise, you are really constantly mortgaging your existance = our food supply.
We would be better subsidising. Though, in the long term, I am hoping for financialy sustainable sectors, without having to depend on subsidies or benefits to get by.

James Dyson is doing some extremely interesting work developing new technologies to enable farmers to farm efficiently and sustainably. The man is a genius.

It seems to me that we really have to find a way of taxing those who are investing in agricultural land with no intention of actually farming while protecting those that are actually engaged in the business of producing our food.

Op You headed your post ‘To wonder why agricultural land is worth so much’, but as I suspected you really just wanted to discuss how the likes of Jeremy Clarkson should pay more tax.

Definitely. I used to date a farmer years ago, he and his dad worked the farm…..his dad was in his late 60s. And my ex also worked doing the milking on a different farm and was also a fencing contractor.

theyd also diversified, I ran a pony trekking business from the farm, they owned donkeys and “did the donkeys” on the local beach and a couple of holiday lets in old farm barns which had been done up. The actual farm did not make much money/barely broke even.

It was sold after his parents died, no idea if its still a working farm.

Except you don't often know what you will get paid until you are paid. Farmers do not set the price of their produce, the buyers do. The individual farmers are very small beans in comparison to the big retail buyers, who will pass the blame onto the eating populace even though it is the supermarkets that controls the price of food it'll be our fault.

Agriculture is like no other business in this country, however business works, agriculture does it differently. Not just in the way the industry is structured but also in peoples perception of it.

Certain industries attact ire if anyone makes money in them or gets a decent wage commensrate with the level of effort put in. Charities, NHS workers, and farmers all come under this unspoken public rule that makes people spit feathers.

Something else to consider when deciding if farmers are exclusively farming in an agricultural sense is that for many many years farmers have been encouraged and incentivised to 'diversify'. Specifically because farming doesn't actually cover its own costs in a lot of cases but we need the produce.

So a farmer with a campsite that pays the bills so they can continue growing food / raising livestock - are they exclusively farmers? What about lama trekking? Educational visits from schools? Old barns that are now holiday lets? Farmers that are also working off the farm, like agricultural contractors? Lorry drivers? On the till in Tesco? How about making finished food products and selling direct to the consumer like ice cream or pies or whatever?

The land itself is valuable. It's an asset which they could sell to make money, but it's also how they make a living. Some farmers do make money by selling some of their land to developers.

There was a TV program last week discussing this and they told that land became more expensive because rich people started buying it to avoid inheritance tax.
apologies if it’s mentioned already.

Of course I think the likes of Jeremy Clarkson should pay more tax but that isn't the point of the thread at all.

I'm really not sure why you're so determined to question my motives, but you're totally missing the mark. Seems that you have your own axe to grind... whatever.

Yeah, I do get that it's complex. But I still think that there should be some way of ensuring that we treat actual farmers differently from tax-dodging investors.

The value of the land is only irrelevant if there isn't a massive chunk of inheritance tax to pay on it! If your land doubles in value, then the amount of tax that needs to be paid on it also doubles, so yes the value makes a massive difference if the kids do want to keep farming it.

They may well have to sell off enough to pay the IHT bill, that the farm is no longer viable. But if the farm isn't liable for IHT, THEN they can keep farming it.

So it would be much better in that scenario for the price of agricultural land to drop, as most farmers would then below the threshold.

The problem seems to be that land prices have been artificially inflated by the tax dodgers who are buying up agricultural land, and the value of the land therefore far exceeds the profit that it can yield.

It would perhaps make more sense in the long term to push prices back down again by imposing the standard IHT rates on agricultural land so that rich people no longer want to buy it as a means of dodging tax. However, you'd have to implement some kind of transitional support for actual farmers that would struggle to pay the tax without selling their land, and perhaps for those who had borrowed against the higher land values etc.

In a way the government attempted to tax the investors who are avoiding IHT but - they do actually farm the land! Dyson and Clarkson are in it for Dyson and Clarkson. Plenty of research goes into farming and Dyson will be making profits for Dyson as a result of R&D.

Maybe the tax limit should have been higher? However these rich people have complex family trusts so will avoid paying tax. Dyson has moved production abroad . He cannot even be bothered to employ people here.

Not many farmers can sell for development. Land must be included in a development plan worked uk by the Local Authority. Not in the development plan - no sale of land for housing. Small farms are bought by big ones. This determines market value and quality of land and farmhouse matter. In the SE it’s easy to get to £3m. Selling up has been the norm for decades. Bigger farms have a better chance of making money and sheltering wealth.

Farmers do work incredibly hard but haven’t always thought about setting up a limited company (no IHT put this on the back burner) or how the farm should be passed on. One farm might be trying to support 3 families when initially it supported one.m, hence low profits for more than one family. Sons and daughters come on board and want an income. Thats not a sustainable model for a mid size farm and definitely not for a small one. Diversification is vital but many don’t do it.

They wouldn't of course have to sell the whole estate. They could sell the land and retain the house, with the minimum reasonable garden around it.

Yep, and lose their livelihood in the process - the one they've spent their lives to date doing so they aren't qualified to do anything else.