The dust is just settling on the first Labour budget in 14 years, with the British farming community now considering the real consequences of Rachel Reeves’ actions on an already fragile food system. Certain announcements were welcomed by some with a sigh of relief, while a particularly controversial clampdown – aimed at inheritance and land ownership – is causing outrage among others.
With the budget for farming protected at £2.4 billion a year (despite a multimillion pound underspend), £1.8 billion for environmental land management (ELM) schemes, £400 million for tree planting and peatland restoration – as well as a soft drinks industry levy rise and fuel duty, frozen for a year – you would think that there are a few things to be cheery about.
However, it was less than the National Farmers’ Union’s (NFU) demand of £4 billion a year for DEFRA, despite the ministry calling it the “largest budget ever directed at sustainable food production and nature’s recovery in our country’s history.”
Post-budget, conservationists and the Agriculture and Horticulture Development Board are still talking about a yawning gap – between what’s needed to fix our broken food system while also boosting nature recovery – and what is presently on offer. Money which is also being vastly, rapidly eroded by inflation.
“Funding for agriculture is still seriously limited. Rachel Reeves had a revelation on the NHS in the Autumn statement. She now needs to have one on UK farming and food. This certainly wasn’t demonstrated in the budget,” says Patrick Holden, CEO of the Sustainable Food Trust.
Controversy on inheritance
What was shown was a taste for a controversial tax rise with a raid on agricultural property relief, and an end to inheritance tax exemptions. This has raised the hackles of many farmers, including many of the land-owning glitterati from Jeremy Clarkson to James Dyson (the latter of whom owns 36,000 acres of farmland across England).
Before the budget, farmland and the family farmhouse could be passed on to the next generation without a single pound going to the Treasury. By April 2026 there will be a 20 per cent tax on assets over £1 million. Along with Business Tax Relief, this could net the government £520 million by 2029-30, according to reports citing the Office for Budget Responsibility.
Some farmers are spitting blood, calling the new tax a “grave betrayal of British farmers.” This is echoed by the Country Land and Business Association, while the NFU has called on British growers to take part in a “mass lobby of their MPs,” calling it an “awful family farm tax.”
Anecdotally, other farming families are concerned about the future viability of their business; with elevated land and house prices in some parts of the country, the £1 million threshold can be easily reached, without taking into account the eye-watering overheads, debt, inflation, operational costs and low profit margins for many of the UK’s farmers.
The result of the 20 per cent tax could mean reduced investment in farming or environmental schemes as farmers must save for their taxes. Family farms may not be handed down through the generations, but sold off and consolidated into much larger holdings.
Conversely, new entrants might find it easier to get hold of land in a currently difficult environment.
“This will not be as destructive as the outcry has suggested,” advises Charlie Taverner, Policy Lead for Farming Futures at the Food, Farming and Countryside Commission. “This all might encourage earlier conversations about succession and allow the next generation to step up. Those could be genuinely positive effects.”
In the coming months it is likely that many more farmers will now be booking an appointment with their financial and tax advisor. If they hand the farm over to heirs seven years before their death they don’t pay tax; new life insurance policies spread over decades could also help cover the tax bill.
Once you include allowances for a spouse and property, the relief gets bumped up north of £2 million; any tax is also repayable over ten years. If you look at the government’s figures on agricultural property relief for 2021/22, the vast majority of claims – 93% – were below a value of £2.5 million.
“Currently there is a tax advantage to just holding land – not farming it – and it’s sometimes being used as a tax dodge. This needs to change. The budget will help and may shift the balance away from farm ownership, towards farm practice,” explains Holden.
A brazen tax haven
The issue to date has been with wealthy investors, both private and institutional, as well as large estate owners using the British countryside as a brazen tax haven to preserve their wealth down the generations. The new inheritance tax rise is aimed at closing this loophole.
The numbers stack up. Data from Strutt & Parker, a leading estate agent specialising in farmland and rural estates, shows that 60 per cent of land marketed in 2023 was bought by private and institutional investors, as well as so-called ‘lifestylers’. It is too hot a ticket to miss – with the average price of arable land at £11,000 an acre in the first half of 2024, this is close to record levels – it’s been an appreciating asset. Land is money and that’s the issue.
At the same time, almost two thirds of all payouts from inheritance tax relief between 2018 and 2020 went to around 200 estates per year, each claiming more than £1 million in relief, with an average estate value of £6 million, according to the Centre for the Analysis of Taxation (CENTAX).
The recent report adds: “Among estates benefiting from agricultural tax relief less than half (44 per cent) of individuals had received any trading income from agriculture at any point in the five years prior to death. Income from agriculture made up less than a quarter of their income on average.” I suspect Rachel Reeves’ Treasury team read the CENTAX report and smelt a rat.
Let’s not forget this exemption has only been around since 1992. Agricultural Property Relief (APR) was charged at 50 per cent before that, according to parliamentary records. Other countries tax land through inheritance. There is also scant data on whether tax relief actually achieves the objective of preserving family farms, since the next generation has the right to sell immediately after the owner’s death (also free of any tax).
The fact is Labour’s budget touched a raw nerve among British farmers, rattling the very social fabric and infrastructure of agriculture, which is already broken.
But let’s not forget that the sector is dealing with unprecedented challenges. The high cost of borrowing, the cost-of-living crisis, the cost of labour and inputs, sky-high land prices and farm-gate prices that aren’t rewarding, all while supermarkets farmwash, as well as drill-down on contracts and phase out traditional farm payments.
It’s a long, bleak list and when your back’s against the wall, this latest move will feel, to many, many farmers, like the final straw.
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