The usual nonsense spouted by so-called professional tax advisers, who are nothing more than right-wing shrills in most cases, continues to fill the pages of newspapers in reaction to the Budget.
As the FT notes this morning:
Rachel Reeves' move to limit inheritance tax relief on business property sounds a “death knell” for family businesses in the UK and undermines the government's growth agenda, entrepreneurs and their advisers have warned.
Business relief has existed for decades in various forms and allows privately held companies and shares in Aim-listed groups to be passed between generations without inheritance tax being levied.
This is total nonsense.
First of all, the vast majority of small, family businesses only last a few years at most. That's just their natural life cycle.
Secondly, most of those that survive a relatively long time (like Tax Research LLP, which publishes this blog) have marginal worth at best for inheritance tax purposes, and an allowance of £1 million will cover any potential tax charge with an enormous margin to spare.
Third, and this may come as a surprise to those making all this noise, most owners have retired and sold up long before the question of an inheritance tax bill arises.
Fourth, most parents are not so controlling that they demand that their children take over the family firm.
Fifth, it's usually very bad news for a business if the next generation does take over. Look at Trump, Murdoch, the Daily Mail and Succession for all the evidence you need on that.
And sixth, why do we think it so vital that the ownership of businesses should not be diversified to bring in necessary new blood and skills as they grow over time, which is what this tax charge will encourage?
Bluntly, I think this is a non-issue at best.
I also think the new allowance, which involves a halving of the tax rate on business assets of above £1 million, is far too generous, especially with respect to AIM shares, where this allowance should simply have gone.
And to claim this is the death knell of family business is so absurd the FT should not have belittled themselves by saying so.
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I have to disagree when it comes to farming and IHT. This is bad news for most small farmers. The idea that land released will go to ‘new blood’ is a bit of a myth – the likely buyers are trusts, institutions, private equity firms and developers. If you inherit a family farm and are useless you will not survive very long! We need to: 1) restrict who can buy land – ruling out the above mentioned categories and also those who make money elsewhere and then buy land – like Jeremy Clarkson; 2) place an upper limit on how much land anyone can own for their own farming purpose; 3) an upper limit on how much land anyone can own for the purpose of renting out.
I disagree
A charge will put land on the market and regulation, as you suggest, can force change. Good news then. No tax perpetuates the status quo.
IHT relief is driving the purchase of land by “non farmers” and inflating land prices making things very hard for wannabe farmers to buy land.
For most small farmers IHT would be a nice problem to have. Average farm size in the UK is 130 hectares so lets say a “small family farm” is 60 hectares (150 acres) worth about £1.5mm. But the estate (on which IHT is charged) will probably have debt – let’s say £0.5mm…… which would leave no IHT to pay. If they have no debt then the charge would be £100k (only 20% of £500k) that could surely be borrowed to allow the farm to stay in family hands.
I agree with Richard that the new situation is still too generous but I think it makes sense to go slowly – rates and thresholds can be adjusted next year… and the year after. This is a long game.
We agree
I might have mentioned this before but in a discussion with our legal rep at the solicitors we use at work revealed that a well know electrical appliance designer now constructing offshore was going around buying farmland in Lincolnshire at a hell of a pace not so long ago.
So I think that Clive and Richard’s input has a ring of truth about it for sure.
But this still makes small family farms likely to bought up by corproate land developers who won’t make practicle use of the land but speculate. How is this better for the ret of us?
Farms of up to £3 million are lilkely to be tax free
Should the state really be more geenrous than that?
Why?
I agree in part, I’d like to see absolute limits on land ownership, that would break some of the feudal hangovers, and acknowledge that land is where we live, so should be individually restricted to free up more of it for more people. It’s unjust that inheritance tax is not uniformly applied. Asset rich, cash poor is a false justification, since assets can be turned to cash. And if you see who benefits most from this loophole, it’s not the people you’re describing. I have a friend whose family farm is worth £2 million. It galls me that it could be passed on tax-free (no one is going to continue to farm it once his father dies, it will be divided and sold), without any obligation in return to continue farming it. If good security and good farming practice are important, this is not the mechanism to achieve either of those. Nationalisation would be the way to go, common ownership of farmland and either publicly-employed or not-for-profit, co-operative running of farms with free sharing of good practice and free education and apprenticeships would do it.
Normally, I find myself in accordance with Richard but I think he’s bang wrong on the impact on family farms. I fear this change will simple lead to the forced sale of family farms to large conglomertates and a further concentration of land ownership. Not a good thing.
There is no evidence to support that
Most small farmers are already tenants
Not true at all. And once again you are commenting on something you have next to zero knowledge or understanding of.
Is there any topic on which you will not dare to publish an ill informed opinion and criticise experts?
Of course I know nothing
A charered accountant for more than 40 years
I have advise hundreds of businesses
I live in and know a rural community
I am pretty confident I know more than you do on the issues I discuss – precisely because of the way you phrase your comment
It is a big change to go from an unlimited full exemption to a small exemption and 50% relief.
But the 100% APR exemption was only introduced in 1992. Before then there was a partial exemption. There were farms and farmers in the 1980s and earlier.
APR and BPR applies in addition to the nil rate band (up to £0.5m per person if you include residential property, which most people worried about IHT will own, or £1m per married couple) and the £1m APR/BPR exemption is per person so actually encourages the passing down interests in the farm or family business at an earlier stage (when the transfer should be potentially exempt) rather than parents hoarding assets until death.
It will hit the relatively small number of large estates. They will be well advised.
Life insurance (in case of an unexpected early death triggering a tax charge) may be a good option for many, so the heirs can just pay the tax and move on. No need for a forced sale. Pay the premiums and sleep easily.
I just checked farms for sale in Cambridgeshire – and got about 50 available
I think 5 or so might be hit by this chanrge
This really is not the issue people are claiming it to be
I come from a very rural area, and live in an even more rural area.
My family were all farmers, not just for one or two generations, but in my case 7 generations plus.
The whole area was mostly small freehold farmers, with a few tenanted smallholdings.
It is still my home area, and most famers have a special attachment to the land, and very deep family and wider social roots.
Many small farms went bust during the Thatcher era, as she hit small milk producers hard, and interest rates hit 15%+. About a third went under. 60 cow herds were not economic.
Then there was another farm finance crisis in the 90s hitting mwdium farms, and a decision was made to sell when Dad eventually retired. The farm – some 400 acres, mostly Grade 3a was sold, and he got more money from selling the milk quota than the land.
There are many rural areas where the entire community is made up of mostly farmers, and a few related trades, mostly machinery contractors.
My niece and other friends and relations still farm, mostly on family farms. It has never been an easy lifestyle.
An enforced and rapid turnover of farmland through increasing the intergenerational tax regime has very many adverse social impacts, especially given the appetite for finance to invest in land as a secure asset. Some are easily forseable, others unintended consequences.
This new tax regime is simply wrong.
I’m all in favour of capital holders paying their whack, but this is a sledgehammer to crack a nut, badly structured, and it is no wonder farmers tend to conservatism when metropolitan Labour politicians repeatedly show a lack of understanding and empathy with rural areas.
This is yet another wrong move by Reeves, after hitting pensioners, and bus passengers she goes for farmers, GPs and the nursery sector.
Her scattergun miraculously misses the finance sector and the obscene hedge fund LLCs beneficial tax regime.
She looks more Tory by the day, a servant of the financiers and banksters, as well as big energy.
Tony evidently knows more than you Richard and clearly disagrees with you. This is yet another example for you where dogma overrides rational thinking.
As I have just noted I have checkewd farms for sale in my locality – where famrs tend to be very big
Taking all likely allowances into account I can’t see how this charge will hit more than 10% or so of farms – and they are the massive ones here
In Wales it will be less than that having allowed for other allowances e.g. on the farmhouse
I really do know what I am talking about – and you don’t.
And I will have to disagree with Tony – as I suspect most farms in Wales are not worth more than £2 million, which sum is likely to be wholly exempt.
It is the unintended consequences that concern me most about rural policy, and the new tax regime is but one part of that. and for the reasons I have already given.
We already know that farmers are an ageing subset demographically, with the average age at 59. I’d conjecture that many farms do not have a succession plan, and no obvious hand over to offspring. On rented farms three life tenancies are not the general rule anymore either. The sons and daughters will be mostly 30-40 already, and very probably in other occupations.
It is all a tricky situation.
In Scotland well over 75% depend on area payments for their incomes, and cannot even support two full time workers, so we have a different scale of succession problems here.
UK wide, we barely produce 50% of our national food requirements, and the last wet 12mts have been disastrous for arable, especially cereal farmers.
For any meaningful future low carbon society we need to be working towards the WW2 situation where 80%+ is the minimum target.
Average UK farm size is moreorless spot on 200 acres and current land values, about £9,500pa for reasonable Grade 3 land, so an average UK farm would set you back just under £2m.
Now that is just the fixed capital value.
Welsh farms are smaller than the UK average and the average Welsh farm land fixed capital is about £1.75m as far as I can work out, so about 30% would exceed the £2m threshold.
Farmers tend to borrow for working capital based on how their bank views their fixed capital assets, (often suspiciously) and tax liabilities form part of how bank’s view the security and risk in working capital loans.
This is such an obvious consequence, any idiot in the Treasury ought to have been able to project the impacts on agricultural investment, before this policy became part of the budget. Bet they didn’t bother looking at these impacts … I doubt it show up as positive.
Of course 50% of farms will be larger than 200 acres, so I’d say 40% of UK farms are worth more than £2m (you have to allow for Grades 3b, 4 and 5 land being cheaper but these farms are considerably larger as they are going to be unimproved grazing of some sort.)
Farm woodland is worth almost as much as Grade 3a land, as is some Grade 3b land speculatively bought for that tree planting and carbon offsetting trading which has dominated recent South Walian farm sales in some areas.
In East Anglia the stats are as follows:
https://www.gov.uk/government/statistics/agricultural-facts-england-regional-profiles/agricultural-facts-east-of-england-region
28% of holdings are rented.
127ha is the average size, so much larger than the UK average.
Given the arable % of cultivation is about 80% I’d suggest this is close to the Grade 1 and 2 land totals for East Anglia too.
Given that data the average East Anglian farm value will be well over £3m in terms of fixed capital.
I don’t know how this affects the arguments on this thread about exposure of family farms to much increased capital taxes.
As I say, I have no problems with the principle of land taxes, but I see taxation at the point of intergenerational change as but one option, however I do not think the context has been evaluated let alone fully understood.
There are wider land tax issues that need addressing, not just Council Tax.
I also consider that LVTs have an essential role to play in a comprehensive alternative approach to land taxation, but I subscribe to Andy Wightman’s views here, not Richard’s.
Continuity and enhancement of agricultural production has to be the main aim of UK farm policy, and this tax proposal does not seem to me to meet that objective.
The new tax will have some kind of negative impact, but by how much we just do not know, as it is obvious that no-one has yet done a full analysis. I do see this as pretty marginal over the whole negative budget impacts however.
My main budget criticism is Reeves’ dodging the full harmonisation of CGT with earned income, and her increasing the NI burden on employers, plus all her anti-Green policies like hiking bus fares but still freezing the fuel duty. Crazy..
From the NFU Website. Tom Bradshaw, President
“Farmers are rightly angry and concerned about their future and for the future of their family farms, having been reassured by minsters in the lead up to the budget that APR and BPR changes were not on the table.
“It’s clear the government does not understand that family farms are not only small farms, and that just because a farm is an asset it doesn’t mean those who work it are wealthy.”
“The Treasury’s figures which claim this will only affect one in four British farms are misleading. The £1million cap to APR shows how little this government understands the sector. Very few viable farms would be worth under £1m, but lots of smallholdings and houses with a few acres let for grazing might be. The asset value of genuine food-producing farms will be high, given the size they need to be to remain viable businesses; but that’s the value of the asset, it doesn’t reflect its profitability which is often, and increasingly so, very low.”
Well, he would say that wouldn’t he, but I suggest he probably knows more about farming than most of us here. Average size of farm is very misleading. I had a farm of 90 acres. There was a time when that supported a family and employed a man. Not any more. Unless you have some intensive system, a niche, have another job, or a spouse/partner with an income you can’t make a living on an average farm in arable or livestock.
In my view it’s another unnecessary nail in the coffin when there were plenty of other ways to raise revenue and other things, already mentioned, could have been done to prevent companies and individuals buying up farms as a tax wheeze.
But the financial estate in such situatuons is large, these people are wealthy despite the claims to the contrary, and the assumption that this wealth should pass from generation to generation untouched is unrealistic and socially inappropriate, I suggest.
And I refer to Andrew’s wise comment earlier.
I will not be changing my mind on this one. Farmers always moan (and I do/ have known a fair few), and that is what they are doing now.
Not sure about wise but anyway.
Here is some context.
100% APR and BPR were introduced by Norman Lamont in March 1992, as a give-away literally the day before John Major called a general election. Here is the budget speech. https://johnmajorarchive.org.uk/1992/03/10/text-of-the-1992-budget-10-march-1992/
To quote: “I propose to take most family businesses out of inheritance tax altogether. This will cost £10 million in 1992-93, and £25 million in 1993-94. Relief from inheritance tax for interests in unincorporated businesses, for shareholdings greater than 25 per cent. in unquoted companies, and for working farmers will be increased from 50 per cent. to 100 per cent.”
At that time, in 1992 UK’s GDP was around £1.2 trillion. It has doubled to about £2.3 trillion now. But the cost of APR and BPR has ballooned from a few tens of millions per year in 1992 to about £1.3 billion each per year now. Partly that is a result of massive inflation in asset prices.
But that is over £2.5 billion of tax relief in a tax that only raises about £7 billion anyway. And most of that tax relief goes to a handful of very large estates of very wealthy people. Most of whom are not working farmers running small family farms.
Hence, why the reform is wise
Richard,
Its all starting to sound a bit like Reichserbhofgesetz (Blood and Soil)
https://en.wikipedia.org/wiki/Reichserbhofgesetz
The farm I used to holiday on as a child was passed to the owners son on his death but he was the only child.
I was talking to another farmer who had ‘inherited’ his farm BUT he wasnt an only child so he had to pay off, from memory his father who was still alive and his other siblings.
OK, she’s a Tenant Farmer but if she wasnt think of what each of Amanda Owens 9 children would get if she and her husband owned the farm.
(Yorkshire Shepherdess) https://en.wikipedia.org/wiki/Amanda_Owen
I suggest that the real issue is that the price of agricultural land and of course the farm house
So inheritance tax isnt an issue as far as inheriting a farm is concerned as far as I can see its whoever gets the farm having to pay off their other siblings.
Simon Fairlie pointed out in The Land Magazine that historically farm land costs about 20 times the annual rent which in turn is driven by the likley profits from cultivating it. That ratio is now out of kilter and I suggest we need controls on the ownership of agricultural land.
I think the big issue is no one wants to inherit the farm. They want to sell it. So this allowance is incredibly generous.
Farming is a way of life & many family farms actually make low net profit. There are children of farmers who want to carry on farming ‘the family farm’. And many of these farms are going to be hit hard by this new tax, so will end up being sold.
Perhaps Reeves & Starmer are only doing this because farmers, like most pensioners (stripped of winter fuel allowance) don’t vote Labour and must be punished.
There is little evidence to support any of those claims
If there was the average age of farmers would not be so high