To continue my series on tax reforms to challenge inequality in the UK, the next suggestion is another obvious one, and overdue to be tackled.
Remove the inheritance tax relief for agricultural property
Agricultural property relief for inheritance tax means that almost all agricultural property in the UK can be passed on between generations free from this tax.
No one is quite sure how much this relief costs. HMRC say it is £365 million a year. But I have sat in the House of Lords hearing them give evidence on the issue when they admitted they had very little real clue as to the cost, and even less as to the benefit.
My argument is a very simple one. Land has long been used as a source of wealth and rent extraction in the UK. It reinforces social control in rural societies. And there is no evidence that ability in farming runs in families: genes don't work that way. A t the same time there is evidence that wider land ownership, opening access to many more who want to and could farm may well be of considerable benefit in agricultural communities.
This relief, which is available to landlords as well as those who farm their own land, makes no sense in that case. It simply works to preserve landed estates intact when there are better forms of land ownership available to society.
What are they? I'd suggest regional land trusts to own land paid in lieu of taxes: there would be no need for forced sales. Existing tenant rights would, of course, be respected. Freeholders could lease land farmed by previous generations back if they wanted. But the important point is that conditions on use, and conditions on the use of income would be applied and that way the absolutely essential reform of our countryside that is vital if we are to preserve biodiversity in the UK, as well as food supplies, can be made to happen.
Existing tax reliefs preserve wealth and work against these policies. This relief has to go.
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Whilst I support the idea, it would very much need to be part of a broader package to support small to medium sized farmers to modernise and develop their businesses and future security. Otherwise, irrespective of merit, on a headline level this is something that the right would absolutely crucify any progressive party with. They would be drawing parallels with Zimbabwe’s farmers and the Soviet Union.
Of course we know that real progressives are the friend of small to medium enterprise and threaten only to curtail the freedom of big business to conduct abusive practices. So the progressives have to make championing the support of small to medium enterprises the cornerstone of their electoral pitch. We know we are in their corner, so we have to start shouting about it.
n.b. – I am going off on a tangent here – only because I see all these great ideas about reforms, but I also see how they could easily be manipulated and misrepresented by those on the right. But they can be packaged and pitched in a way that avoids that, I feel.
Fair comments
Richard
I’ve long thought that inheritance tax is far too low in general, and it should be one of the highest and most aggressively pursued tax there is. However I accept that I’d like to pass on a place to live to my kids however not millions (if I were to ever have millions!!).
Linking the tax threshold to some social measure could help massively with redistribution (some like the total tax free allowance is a multiple of national average or minimum wage or house price although that may be too simplistic). This would make it in the interest of the higher earners to make sure there is less inequality to help drive up the average.
The premise being that “you have lived in our society that has provided opportunity to earn and have a good life, once you are gone it is time for other people to have the same opportunity you did”.
Any thoughts on Inheritance Tax in general?
(Obviously a party getting into power with this in their manifesto is a totally different question, although manifesto commitments appear secondary considerations these days).
I will get to bigger changes later in the series….
I am starting with the tweaks
Would agricultural businesses still qualify for 100% business property relief (i.e. if the land is being used in an active business), or would you abolish that too?
I don’t see IHT at 40% as being too low. Quite the reverse. Reduce the rate to say 10% or 20%, and you it would be easier to abolish the reliefs and widen the base (including a smaller nil rate band).
I’ll get to the first
The last – another issue
This is the subject to set the horses running in Scotland as it’s a challenge to the old guard. We need to widen land ownership as a major priority to stop the continuing loss of the younger generations.
Agreed