Farmers are the collateral damage in the latest round of Britain’s terrible tax policy.
The Budget inheritance tax raid on family farms was an ill-considered solution to a problem created by a bad tax, which no Chancellor has been brave enough to properly reform or just get rid of
Agricultural property relief existed to prevent family farms having to be broken up and sold off to pay inheritance tax bills, as they were passed down farming generations.
Yet, it’s been an open secret for many years that the very wealthy have been buying up farmland as an inheritance tax dodge. It’s been referred to as the easiest way to pass on £20million untaxed.
Rachel Reeves announced she wanted to stop this in the Budget, by putting a £1million tax-free limit on agricultural property and charging 20 per cent inheritance tax above that.
But this was one of the worst possible solutions, as the very wealthy still get an inheritance tax break on land – a 50 per cent discount on the standard IHT rate – while genuine farmers face the potential consequences to their livelihoods of big IHT bills.
Landed in it: Farmers took to the streets of London this week to protest against the Budget move to put inheritance tax on family farms
The Budget announcement made no attempt to distinguish between investors and actual farmers, so it’s hardly surprising that it has backfired and led to protests.
Investors can sell their land at any time and move on, farmers are small business owners for whom the land is an essential resource.
You can see why farmers are asking: ‘Why are you targeting us?’
The inheritance tax break has continued unchecked for years and driven up the price of farmland, with wealthy investors often shouldering farmers out of the way.
Now farmers have become the victims of a crackdown on the very rich taking advantage of a tax relief designed to protect them.
And this comes at the same time as government bungling of a supposedly improved payment system after Brexit has left their incomes even more precarious.
The British countryside faces big challenges, including climate change, food security, and the need to reverse the depletion of nature that has happened since the rise of industrial farming after the second world war.
Farmers are the stewards of our land, the providers of our food, and nature’s caretakers. They are on the front line of improving the environment and looking after the countryside that many Britons prize so highly.
The government needs to work with farmers to make things better, yet somehow less than six months in, it has managed to alienate them.
I presume someone in the Treasury watched Clarkson’s Farm before wheeling out this inheritance tax raid and twigged that while they might look rich on paper, Britain’s farmers aren’t rolling in it.
The Amazon series follows Jeremy Clarkson in his switch from petrolhead to tractorhead and while the TV host is not everyone’s cup of tea, he has won acclaim for highlighting the struggles of British farmers.
Clarkson shows just how hard it is to make money from a farm, even if you have all the advantages of fame and fortune – and repeatedly and readily admits that he wouldn’t be able to keep farming if he didn’t make a mint elsewhere.
Even if the only research Labour did was telling an adviser to sit down and watch a few episodes of Clarkson’s Farm then report back, it should have been enough to stall this raid until they could think the policy through better.
Farm and fortune: Jeremy Clarkson has won acclaim with his Clarkson’s Farm TV series and highlighted the plight of Britain’s farmers
I don’t profess to have any form of expertise in farming, but as a financial journalist I do know a little bit about the inheritance tax problem and have observed the issue via family who farm, have farmed, or live in farming country.
In the latter case, my relative in Shropshire’s border country has long told me about the problem of wealthy investors buying up as much land as possible, squeezing existing farmers out of sales, stopping young farmers starting their own farm, and preventing tenant farmers from buying the land they farm.
I also have two relatives on different sides of my family who farm or have farmed in the South East. In this part of the country, how little profit there is in farming stands in even starker contrast to how expensive land is.
The problem here is not just inheritance tax dodging but fields being optioned for housing. If you can get green belt land assigned for homes, there are lottery-winning sums to be had at the stroke of a planner’s pen.
I cite these examples not to claim any authority but to illustrate how you don’t need too deep a knowledge to realise that the Budget change was too simplistic and it would be farmers who bore the brunt of it, not the wealthy investors it was supposedly targeting.
Labour used a sledgehammer to crack a nut – these changes are only forecast to raise about £550million and that’s probably optimistic.
Meanwhile, its figures on how few farmers will be affected look suspect and don’t pass the sniff test. It claims that these OBR-verified numbers show 72 per cent of farms won’t pay inheritance tax under the new rules.
The National Farmers Union say this isn’t the case and that Defra’s own figures indicate 66 per cent of farms would be affected.
Land agents agree that the extent is greater than the Treasury says and there are suggestions that its numbers have been skewed by the inclusion of ordinary estates that hold just a few acres claiming agricultural property relief against IHT.
The situation has descended into a slanging match and saw farmers arrive en-masse in London to protest this week and threaten strikes.
What is abundantly clear is that there was almost certainly a better option.
For a start, inheritance tax needs a total overhaul – or maybe just scrapping – there is a six-year old Office of Tax Simplification IHT report gathering dust that outlines that in detail.
No Chancellor has been brave enough to sort out inheritance tax properly, so they just keep making it worse instead while cashing in.
In this latest instance, farmers lose their protection and the rich still get a tax break.
There aren’t that many inheritance tax claims for agricultural relief each year and only about 500 over £1million, they are likely to already be scrutinised, and it would not have been difficult to work out if someone is actually a farmer.
We could have kept the protection for family farms and reduced the tax break substantially for big land investors, while still giving them some reward if they were good stewards of the land.
Or we could have had an even bolder idea.
We continue to allow this tax break but as all the rest of us taxpayers are picking up the tab it comes with a trade-off: if you are a big landowner and want your land to be inheritance tax-free you have to allow us access with a Scottish-style right to roam on it.