Should James Dyson (who owns 36,000 acres of land) or Jeremy Clarkson (1000 acres) be the beneficiaries of a tax break designed to help working family farms?
In her budget, Rachel Reeves announced that Agricultural Property Relief (APR) is changing. Previously, farmers and other landowners did not pay inheritance tax on agricultural assets. Under the new rules, assets above £1m will be taxed at 20% (half the general rate of inheritance tax). This may sound generous – but £1m will buy you about 100 acres, which is far short of a viable farm. If (as I hope) Reeves’ aim was to close the loophole whereby rich tax dodgers buy up land primarily as a way of passing wealth, tax free, to their children, then she has got her calculations a little wrong and may drive more small farmers out of business.
As a second-generation farmer, I understand the impact of this change. Farming is a long-term business requiring substantial assets that, in cash terms at least, earn meagre returns. Introducing inheritance tax to our work and planning is a big deal. This should not only concern farmers: from national food security to environmental improvements, Britain’s farms are vitally important – and good land management requires both long-term investment and security of tenure.
If Reeves, quite rightly, wants to extract from wealthy landowners some of the £40 billion we need to rebuild our country, here would be a fairer approach. Firstly, a higher threshold on the APR change. In most cases, the smallest commercially viable farm is 300 acres. Taking an average land price of £10k per acre, that would suggest a threshold of £3m before inheritance should be taxed. I can see little reason why those owning land worth more than, say, £7m should not pay the standard rate of 40%. Secondly, where planning permission is granted, land value can increase 10- to 1000-fold – and as long as the owners reinvest in more land, they pay no tax. Reeves could target these capital gains, where the landowner has added no value.
Finally, APR is given to all landowners, without differentiating between working farmers and those who are buying up our country mostly to avoid tax. The unintended consequence of this has been to inflate land prices, and effectively exclude new entrants (who will not inherit) from farming. Taxation to encourage the sale of such estates could create opportunities for new farmers to buy land and revitalize farming rather than adding to its decline.
I’ve been hoping to have Guy’s take on the government’s inheritance tax changes: there’s been quite a bit of comment and some less informed than others. Especially good to have those calculations and a proposed way forward. So, will your way forward, Guy, be backed up by a campaign? Ought we all to be writing to our MPs to press for these changes? I’d be very keen to add just one more voice to such a campaign.