I am aware I touched on the issue of inheritance tax on farms yesterday, but I felt it was worth another go. There is a lot of additional analysis in this post, so I hope it is worthwhile reading.
When farmland has become financialised in the way it has been because of inheritance tax exemptions, farming can't work, so farmers need to realise that actually having an inheritance tax charge helps them to reclaim farming for farmers and for the benefit of the people of this country. They really should not be protesting today: Labour is, for once, on their side and even doing the right thing.
This is the audio version of this file:
This is the transcript:
We need to talk about farms. We need to talk about farming economics. We need to talk about inheritance tax. And we need to talk about why all these issues are related.
Farmers are up in arms and are complaining about their tax bills.
Let me tell you that I first worked for a firm of accountants in East Anglia more than 50 years ago now and at that time farmers were up in arms and complaining about their tax bills. This is the normal state of farming in the UK. Farmers are not happy people by definition, it seems. They will always find something to moan about and the government and will always be high on that list.
So, let's not get overly upset about the fact that farmers are suddenly getting a bit angry about the fact that Labour has had the temerity to impose a very small inheritance tax charge on them, which is much more favourable than that which is going to be paid by the rest of society on their homes or their assets and so on. And let's take a look at what is really going on in farming because I do understand that farmers do have some real reasons to be upset. It's just that inheritance tax is not really the cause for that. It might be the symptom that has given rise to the process, but behind this issue, there's a great deal to unpack.
And that, fundamentally, is that farms and farming economics are all going wrong. Why is that? Let me put some figures into this and maybe a little bit of economic theory to try to explain why it is I think this situation has arisen.
If we go back to the type of economic theory which is taught at most universities, and I'm being very simplistic here, but there's nothing wrong with that because this is what people are told, there are what are called four factors of production.
Those factors of production are land, they are capital, they are labour, and they are enterprise. And the return to those four factors of production, which are supposedly all-encompassing of what is required to produce goods and services, are rents, and interest, and wages. And those are the supposed returns that should be made on those four factors of production.
So, that is the framework in which we can examine farming inside what we might call a liberal capitalism framework.
A liberal capitalist society is one in which it is assumed that the capital of that society is brought together to produce goods and services for the benefit of everyone through a market system. And that, again, is what is taught as being the way in which our economy works. And I stress it's what is taught, because we might find that there are problems with that analysis later on, but let's start with it.
If we come to farming, I want to use a few numbers to explain how what I might call a typical farm might work.
That farm might have land worth, I'm making an estimate here, £3 million. And £3 million will ensure that inheritance tax would be paid on this farm if it was passed on at death by the farmer or their spouse under the new laws that Labour is introducing. So I've chosen a number that is deliberately big enough for that purpose.
That £3 million of land should produce an economic return under economic theory, and that return will probably be expressed as a percentage of its value. Let's assume that the land should produce a five per cent rate of return on the capital employed, and that would be £150,000 a year that should be paid to the farm for the use of that land.
Now, let's look at the second resource that the farm uses. Let's assume that it owns £1 million of farming equipment. That's the capital employed in this business, which would, by the way, be included in the valuation of the business that would be subject to inheritance tax So again, I've deliberately chosen a number that is big enough to trigger this charge. And that capital equipment is things like tractors and combine harvesters or whatever else is required to make the whole thing work.
On that, there is a rate of return. It actually is interest. But let's assume the farmer funded it themselves for the moment, and instead realise that, of course, that capital equipment doesn't last forever. It has a finite life. Let's assume that it has a life of, let's say, five years. That might be a bit tight in some cases. I see tractors rolling around East Anglia that are 25 twenty-five years old. But we'll give it that for the sake of argument.
And that means that the farmer's got to generate £200,000 a year of income just to cover the replacement equipment. That's a fair assumption.
Then we come to the farmer. And the farmer gets their return in two ways. One is a wage. Now, the farmer, and quite possibly their spouse, will work long hours on the farm, and therefore I'm not suggesting that the wage they should get should be anything like the median wage in the UK, because they work very long hours, they work very hard hours, they work anti-social hours, they do it 365 days a year in some cases, so clearly they should make more than the median wage. Let's presume that they're going to make £50,000. That may not be enough, but I'm going to use it as a symbol of the wage return.
But it isn't the only return that the farmer should get, because the farmer is not only a worker, the farmer is, in the conventional analysis of the inputs into this business, an entrepreneur. They provide enterprise, and the return to enterprise is profit. They bring to the business something more than their labour. They bring their ability to coalesce the land, the capital, and the labour together in a way that produces a useful output. So, they're entitled to a return on that activity, which is profit. And I'm going to suggest that this activity, which does demand real skill, could return another £50,000 a year to the farmer, giving them a total reward of £100,000, which most farmers would be pleased to see, but which is made up of these two components, one labour, and one profit. And I summarise all this in the chart that's now on the screen.
But, now let's talk about what returns are really made, because returns to farmers are nothing like the £450,000 which is required to cover the return for labour, the return for profit, the return to the land, and to cover the cost of the equipment.
And I do show in that chart that £200,000 is both a return required and a cost, but still, that this business should have a net return of £250,000 split between the return to the land, and the return to the labour, and the return to the profit. Somebody else is going to get the return on the capital. In effect, the manufacturer of the equipment gets the return on that. But the farmer's got to cover it.
Now, very few farms will be making that much money. What we're actually hearing from many farmers right now is that they basically don't make a return on the land that they employ in their business. And I'm going to take those farmers at face value and presume that is correct; that there is actually no return on the land that they use in the business, even though they are now going to be asked to pay tax on it if they pass it on from generation to generation.
So, in other words, the £150,000 that should have been generated to cover the return to the land is simply not there. They lose that money. They're employing £3 million worth of land in their business which doesn't generate a return at all.
And, I hear farmers saying that they are really not making an adequate income anymore. And, this is so widespread a complaint that I believe it. In that case, I'm going to presume that not only does the farmer make no profit at all - in other words, cancelling that £50,000 that they should make, because of their ability as entrepreneurs - and that they might even make a loss on the labour that they put into the business because they do not make enough to actually cover the value of the time that they expend on the farm, therefore reducing the value of the labour to £40,000 and cancelling the profit altogether. So, what they're actually making is £240,000 a year, but £200,000 of that is to cover the cost of the equipment written off during the period, and therefore not available to the farmer at all. They're living on just £40,000 as a return on £3 million of land, and £50,000 worth of labour, and £50,000 worth of enterprise effort put in by them to try to make the business work, but it doesn't. In other words, if I expand that summary of the farm accounts, what we're really seeing is that the farm could be making a loss of £210,000 a year against the opportunity that it should apparently have created if it had worked well, but it doesn't.
Now, my question is, why are farmers complaining about inheritance tax then when it is very clear that it is something else that is wrong in farming. If farmers aren't making a return on their land, it's not because of inheritance tax. Let's be clear about it. The price that they're being paid for their product must simply be too low because they should be able to make a return on their land, or alternatively, their land is worthless, in which case there shouldn't be an inheritance tax charge on it anyway.
Now, let's just explore that. If they're being paid too little money, that's because there are two forces that are lining up against them, and maybe three. One is Brexit, and let's leave that one aside because it has reduced the subsidies they get.
The second one is the large food manufacturing companies because, let's be clear, most food does not leave the farm and go straight to a supermarket. Most will be used for food. as an input into a manufacturing process, which does then result in a manufactured product called food, which does eventually end up on the supermarket shelf, but with that manufacturer taking a significant profit margin out on the way. They, those manufacturers and traders in food, are seriously forcing prices down to farmers.
They are the problem for the farmer, and, let's also be honest, so too, thirdly, is the supermarket, who insists on trying to sell food at the lowest possible price as the basis for price competition between the supermarkets, which in turn then feeds their quite large profit margins on other products that they sell alongside the foodstuffs.
Now this is where the problem for farmers is, and it is where they need protection. Farmers are not being paid enough and government should be ensuring that they are. They should be angry with the government. They should be angry that they have not been protected against the monopsonist power of either the food manufacturers or the supermarkets. And a monopsonist, by the way, is somebody who is a single buyer or a small group of buyers who can control the prices that large numbers of people can charge to them on the supply of products. So this is a form of monopoly, but used against suppliers instead of against the consumer.
So, they need action against the monopsonists.
They also need some realistic appraisal of why it is that farmland, which makes no return at all, according to farmers, when used as farmland, is currently valued quite significantly. The £3 million that I put into this calculation is based upon the fact that farmland changes hands for significant amounts of money now, much more than it did only a decade or two ago.
Why has it suddenly gone up in value? Well, that's because some people are buying a great deal of farmland. They are assembling farms. There's one in East Anglia which apparently has 36,000 acres of land under its control, which is being assembled for one straightforward reason and that is to make use of the inheritance tax loophole which has guaranteed that an estate could be passed on free of tax under past inheritance tax legislation. In other words, farmland has been used as a financial instrument.
It's not really being used as an input into the farm production process or the food production process, whichever way you wish to look at it. It's simply being used as a tool to be put in place to reduce a tax bill. It's therefore not now an input into the liberal capital system. It's part of the financial capital system. And we don't really have a liberal capital system of the type that in fact I explained earlier on at all in this country anymore.
Liberal capitalism is, in a very real sense, dead. The idea that we run an economy for the sake of producing goods and services which might be a benefit to humankind is frankly to be considered history now. In the sense that the whole of the City of London has turned capitalism into a financial product system, farmland is just a product to be used for financial engineering.
So, the farmers actually should want an inheritance tax charge on this land because if there was an inheritance tax charge on this land, it would no longer have a value for financial purposes. It would only have a value for farming purposes. And for farming purposes it has no value at all, which means actually they could pass on their estates to their children however they like with no tax charge arising. It solves their problem to have an inheritance tax charge.
They are protesting about the wrong thing when saying that inheritance tax is penalising them. It isn't. It's helping them.
It actually will help them in another way. If we have serious inheritance tax charges, the price of farmland will fall so much that people will actually be able to enter into farming because farmland will be affordable to people who want to become farmers. And let's be honest, there is nothing that says that farming is a purely inherited business. Why should it be? Like every other business, people can acquire the skills to farm and not just through their genes. So, it would be entirely possible that if farmland fell in price because it wasn't used as a financial product new farmers would come into the business and that would be good for farming.
It would be good for our society.
It would be good for sustainability, most like.
But, at the present point in time, farmers are objecting to that inheritance tax charge and are therefore making life for farmers harder, and that makes no sense at all.
Now, let's stand back and summarise all this. As I've explained, the model that is being used to analyse return to farmers suggests that, in fact, there's something seriously wrong with the economics of farming. There isn't a proper return being made. There is no return to land. But land has value because land has been valued as a financial instrument, not as a farming input. In that case, farmers need to change their economic arguments. They want the value of land to fall if they are going to be able to pass on their farms to the next generation without inheritance tax charge, which you can always do if something has no worth, and they want the value of farms to fall to encourage new entrants into the market, which the industry desperately needs because the age of farmers is growing steadily.
So they shouldn't be complaining about inheritance tax charges. They should be welcoming them. But what they should also be demanding is that the government take action against the rigged market that prevents them getting a proper price for the sale of their product. That is also critical. And the government that doesn't want to do that is a government that is going to fail the people of this country because we do need farmers for food security.
I am actually on the side of farmers here.
I want farming to work.
But when farming has become financialised in the way it has, it can't work. And farmers need to realise that actually having an inheritance tax charge helps them to reclaim farming for farmers and for the benefit of the people of this country.
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No farmer wants the value of the land they currently own to fall. They want to be able to keep that value – and pass it on to their children and grandchildren – without paying the tax that would be charged on other assets. The sort of tax that would have charged when their parents or grandparents died before 1992. They have had a tax holiday for over 30 years.
And despite protestations of poverty, most farmers always want to buy more land. They would be very happy if they could pay less to buy the adjacent land. And not to compete with the sort of financial investors who bought Strutt & Parker Farms and its 20,000 acres (80 sq km) and £20m annual income for around £200m just a few years ago.
If a small family farm of say 100 acres (0.4 sq km) – or 200 acres or 300 acres – perhaps sheep in an upland area, is not capable of generating a return for farmers, it is not a business. It is a lifestyle.
Spot on, Andrew
A good analysis. Indeed, what you say can be seen in land rents.
In round numbers, land costs £10,000 per acre to buy; its rental yield is about £100 an acre….. or a 1% yield. In the long run, one might expect land prices to rise in line with inflation so, perhaps the correct comparison is Inflation linked gilts that yield 1.5% (real – ie. inflation plus 1.5%). That’s 1.5% with no risk, no work and excellent liquidity. So, why would anyone buy agricultural land that yields inflation plus 1%? – Inheritance tax! (And, to a degree, the prospect of getting planning permission at some point that multiplies the value of land ten-fold or more).
Now, rents are determined by the profitability of working the land and, as you observe, this is driven by supermarkets. So, little prospect of those rents rising sharply. The only way to “square the circle” is for land prices to fall to (say) £5,000 an acre to bring the real yield up to 2%.
For any industry, a fall in the input costs is very good news… so for “farming” it IS good news. However, the individuals that are currently farmer/owners it is bad news because the value of their holding will go down…. and that is why they complain – it’s not about IHT itself (despite what they say).
(I would also add, as I alluded to above, that the windfall gains from planning consent also drives land prices; this needs to be tackled, too. I can already hear the cries of “Land Tax” but that is a thorny issue…. something more specific is needed.)
Thanks
“The only way to “square the circle” is for land prices to fall to (say) £5,000 an acre to bring the real yield up to 2%”.
Land prices fall 50%. That is surely a demanding expectation? Are you assuming the Government policy will deliver it? At the same time there are expectations planning restrictions will be lifted in the attempt to stimulate house building, for example; which is presumably a countervailing expectation in the market for land?
Tiny parts of land will be available for development.
And if IHT was charged at 40% a halving in the land price is likely – 70% of buyers are seeking IHT relief now.
Richard,
Excellent, my thoughts exactly but put much better.
I might add that there is the very high level of uncontrollable risk farmers bear, weather, disease and markets being the obvious ones. Hence, sadly the high level of suicide and mental health issues.
No one asked anyone to be a farmer
That can go with all walks of life. Anyone can have problems in life because of work related problems. Look at the poor steel workers, losing their jobs or the midwives working long hours or the paramedics dealing with road crash victims, or anyone who’s been in a position of losing everything. It’s called life. I’m not saying it’s easy, but farmers know they have a choice the same as anyone else.
Very much agreed
But they are telling us that is not the case, which is total nonsense.
We argued a bit on your post yesterday but I want to extend an olive branch. This is the post you should have written yesterday. It’s arguments are at once more persuasive and more sympathetic to farmers. Thanks Richard.
Thanks
This post reminds me why I am right to come here. There is a real digging into issues that the mainstream media just does not deliver.
A lot of the new executive homes popping up over the years in my area have been on greenfield sites owned by some farmer ( I also see a lot of this happening in rural Ireland). So, the finanacialisation argument is a cogent one. If food production was such a salient issue, that housing development would not be allowed to happen.
But the market – which one former prominent central banker noted a while back – is useless at valuing things until they have been turned into something that can be exploited for the benefit of finance (huge returns, less risk, rentiership etc).
In one way farmers are put into that situation by poor economics which is bad; but on on the other hand they are a well organised lobby group who do not seem to be able to articulate properly what their problems are.
It reminds me of the housing sector. Anything else is the problem (immigrants, social housing, the planning system ) except the problem itself which will not be tackled because it benefits certain people that it is not tackled..
Again, what a country…………………..
Agreed, what a country…..
Fine post.
“So, they need action against the monopsonists.” e.g. Milk Marketing Board (abolished by the tories/neolibtards) or itrs modern equivalent, or a Wheat Purshasing Board or.. etc.
Agreed
Another factor giving free rein to the monopsonists is the failure of British farmers to combine forces in big marketing cooperatives. As is routine practice on the European continent.
Excellent video, Richard!
I think agricultural policy is an area the left has abandoned since the 50s, and one that we should reclaim.
In terms of the inheritance tax, I think there are specifically two problems
1 – the loophole has not been fully closed, and so land valuations will not be reduced, because land is still the most effective way to minimise IHT
2 – is that most farms simply haven’t budgeted for paying IHT, and since land valuations aren’t falling, they’ll likely have to sell off some of their land to make such a payment (even the 10 years HMRC allows would not generate enough income to pay), and given that most of this land will be less than 1 million in value it will become another way to dodge IHT.
So really I think what farmers, and perhaps we on the left in support them, should argue is that inheritance taxes should be brought in line, and that the government should support cheap, healthy food.
Benign-sounding schemes like the ‘Sustainable Farming Incentive’ introduced by the Tories exists to pay those with unworked land for owning it, and incentivise farmers to stop farming, which is bad for our food security. Instead, to protect our environment we should be applying more scrutiny to those with unworked land, who are often found wrecking ecosystems for the sake of bloodsport.
Quite a lot to agree with
Didn’t we have ‘Marketing Boards’ in the 1980s [Milk Marketing Board etc] which helped farmers get good prices for their produce? Where did they go and could they be brought back?
We did
By and large they worked
But like so much that did, Thatcherism got rid of them
I knew an I.T. bod who worked with the milk marketing board and he told me of hundreds upon hundreds of thousands of pounds of investment that the Tories wasted when they got rid of it.
They did exactly the same when they came in 2010 – I knew of hundreds of projects – mid term ones – just stopped and money wasted hand over foot as they were stopped over night.
This is why I get so worked up about the concept accountability – there is none, especially for our politicians who increasingly act like absolute rulers, in the name of ‘saving money’ and ‘efficiency’.
Nothing will stop my lust for justice until we have these idiots in the dock cross-examined to reveal their crimes against social capitalism/markets.
“How many farms will be affected by Budget tax rises?”, BBC News (19 Nov 2024)
https://www.bbc.co.uk/news/articles/c8rlk0d2vk2o
“The largest estimate – 70,000 – relates to the total number that could ever be affected. But the number of farms likely to be impacted each year is likely to be around 500.”
Richard
Isn’t the Truth that the landowner gets a holding gain from holding an asset increasing in value without any labour , enterprise or for doing anything.
This usually is the factor that balances the real farmers well being, assuming they own the land.
They face the loss therefore if land prices fall. They are protesting therefore at the prospect of falling land prices not Capital Gains Tax.
Farmers could be offered deals by the tax man to sell farms and land at more than market value to enable the build up of a nationalised farming sector for farmers looking to rent land at low rents. This would offer a way out to farmers exiting the market, and offer low rents and continuity for qualifying farmers looking to take over the business. It would also help to ensure land was effectively used rather than merely held for speculative purposes. Ie much of the unused land close to small towns in Kent.
We don’t need to intervene to help farmers with grossly inflated wealth as a result of a wholly unnecessary tax subsidy.
That would be as bad as compensating slave owners once was
Can we get priorities right? Wealthy farmers come 327th on the priority listing.
Or Doctors by allowing them to retain rights to private practice while working for the NHS.
Or French farmers threatened by raises in diesel prices to comply with climate change policies.
Sometimes realpolitik comes in.
The Tory party are going to exploit this to win back the countryside. A compromise might be to increase the threshold and put up the rate of IHT . That might flush out who is really behind the movement.
And 328th on the list of priorities are those very wealthy individuals who have been amassing DC pension funds as an IHT dodge, too. If the proposals made in the Budget come to pass in 2027, I, for one, will be delighted. After all, the purpose of having a pension fund is to provide a pension, in my book.
I was listening to an individual yesterday having a big moan about this. They had ‘forgotten’ the pre-2015 55% tax charge on ‘unused’ pension funds. So, I said, “what are you going to do about this, cash the thing in, pay Income Tax, and hand the money over now using the principle that warm hands are better than cold?” They demurred.
“Why not buy a pension, then?” I countered, adding that, if the ‘inheritability’ of their big pension pot was paramount, they could used an RPI-linked guaranteed annuity income stream to fund an (expensive) whole of life insurance. In this instance, £250,000 from the private pension would buy a gross £700 per month, adjusted each year for inflation, for life. The individual doesn’t ‘need’ this income, as they have more than adequate income from other sources.
At their age, this £700 per month could buy about £463,000 index-linked whole life insurance, assuming that they qualify for standard rates. Write that £463,000 into a life policy trust and the money is outside of your estate. Problem solved, but they won’t do it, because that the ‘amassing of riches’ has sadly taken hold.
I think that astute
This brilliant post opened my mind to the real cause of the struggle of small farms .
Thank you
My local farmer recently sold a parcel of land for 9 million in an already densely populated area. In this circumstance, I don’t feel particularly sympathetic towards some members of the farming community. The land will be developed into 500 new homes, which is unsuitable due to the lack of supporting infrastructure in the area.
And how many times have I heard that over the years…………………..
Richard,
This is an excellent post – one of your best. A general rule of thumb in any system is that it doesn’t make sense to change an individual component of the system (e.g. the inheritance tax exemption component in this case) without thinking through the impact of that change on the whole system (e.g. the food industry).
Let me summarize the bigger picture that you describe. The supermarkets have significant market power which they use to drive down the prices they pay to food manufacturers. The food manufacturers then drive down the prices they pay to farmers. This arrangement has pros and cons. The main pro is cheap food prices for consumers. The main con is that, as you argue, much of the farming industry is not economically viable. This is not sustainable, particularly when this non-viable farming industry is vital to any degree of food independence for the UK.
The core question is what should we do about this? The main issue with this question is that any proposed answer seems to involve making the system more complicated and introducing further problems.
What is clear is that, over the last 50 years, the UK has chosen to answer this core question by bribing farmers to continue farming even though much farming is not economically viable. The bribes have included farming subsidies and exemptions from IHT. You have eloquently pointed out that the IHT aspect has resulted in the financialization of land. That has been a disaster. Farming subsidies have also resulted in further problems, not least that the subsidies have been an ever-changing political plaything. One of the many mysteries of Brexit, at least to me, is why many farmers voted to leave even though this involved further destabilization, and possible reduction, of their own farming subsidies.
As a result of all this, the various bribes to farmers are BOTH part of the UK’s current answer to the core question AND the source of further major problems.
You are correct that the IHT exemption is not the core question for the farming industry. However, the farmers are correct in pointing out that the UK’s current answer to the non-viability of farming relies on bribes to continue farming. If these bribes are removed then we no longer have ANY answer to the core question and the system will fall apart! Only the farmers seem to see this. What do you think is a practical non-bribe related answer to the core question? I am not sure that there is one and suspect that some sort of subsidies are the least-worst answer. Not IHT exemptions though!
Simple
We need price controls
I will do a blog
Richard, good analysis & I agree that monopsony rather than IHT is a bigger problem for farmers. But since the government isn’t really doing anything about the former, the latter becomes another cross to bear – especially for the critical mid-size farms and especially in upland areas, which have already been hollowed out, so surely this could compound the ‘missing middle’ in the sector? Presumably corporations don’t pay IHT so a likely result of the policy could be more corporate ownership, which probably won’t align well with food production or long-term conservation goals. Isn’t there a danger that this policy just changes the faces of the people who are gaming the system?
IHT can be paid on farming company shares
Richard i certainly agree with your asessment of the inherence argument although i have no finance qualification i am a 90 year old Norfolk man and have seen the way that the farming fraternity have enjoyed a life that is not available to most people they have no respect for the
environment unless paid for by our taxes arable farmers who in this part of the country are the majority in my opinion need few skills relying on the pesticide suppliers field men to guide them and i do hope the govt stays strong and continues with their tax plans Mike
Thanks
And agreed
These farmers are the same people who are destroying much of our countryside
Richard, I understand better your IHT argument here, than in ‘Farmers need to stop talking nonsense’, which I thought more likely to provoke than persuade angry farmers. It directly addresses the fundamental problem. Nevertheless, while your critique may reduce land prices, there are I think countervailing pressures on land valuation (the easing of planning restrictions, for example); and estate owning remains a longstanding predilection for the very rich (who are very much richer than ever), that never seems to change. Land is scarce, nobody is manufacturing it; and in land the law of supply and demand inevitably rules.
At the same time, while some valuation fall may adjust the profitability/capital return problem there is nothing in IHT that changes the monopsonist problem. Labour addressing the rigged market problem, I just don’t see. If they did, they would then have to address the other unmanaged, profiteering monopolists; in utilities, for example.
Given that farming as an economic activity for many working farms is a precarious business, at the same time I am not sure how comforted farmers will feel if they see only a marginal improvement in their return on capital, but a significant fall in their theoretical wealth (from their perspective, however self-interested that may appear). People do not take kindly to being measurably poorer, especially in a marginally viable business environment. It may seem unfair that farming receives such unprecedented public attention and concern (compared with others in precarious business sectors), but this is Britain – and they do.
John
This has nothing to do with farming and everything to do with the preservation of wealth hierarchies and the petty politics that goes with it
Written all over this is naked greed
Richard
Why is it that objectively wealthy people who happen to own land in the countryside should pay less tax on their wealthy than others who own other assets?
How can someone like Jeremy Clarkson – who is on record as boasting that he bought his farm to get the inheritance tax exemption – credibly argue that their children should be entitled to inherit assets without any tax?
There is still an uplift in capital gains tax base cost to market value. That saves 24% CGT on a future disposal, which is more than the nil or 20% inheritance tax.
See my post just published
Because many farmers are asset rich but cash poor and they continue to farm generationally and to pass on to their family. It is a way of life and they invest over generations to provide food.
So this inheritance tax bill will be huge due to the value of the assets but their income is small so can not sustain a loan over the 10 years.
If they sell off a bit of land the farm may not then be viable.
So they will give up farming
Or sell off land
That land will.then be brought by developers or big companies so no farming will take place on that.land.
So basically all food will be imported making us reliant on other countries for food supply.
All of this is total nonsense
No one requires that anyone be a farmer
And farmland is almost invariably sold as farmland. Have you heard of planning permission?
With respect, it helps to not talk drivel.
Yes, but will this approach really transform the status quo ante? The fact that IHT had a major impact on increasing land values in the first place is persuasive; but that does not mean increasing IHT proves the predictability of a mirror image equal and opposite fall in land prices (such as that which Clive implies); because of the effect of other factors, some of which I have tentatively suggested may prove countervailing factors?
I am becoming very weary of faith in the effectiveness of the moral high ground. The world we are living in is quite obviously a toxic swamp, and holding the moral high ground is of modest practical value as a solution, when it too is already under water.
Why won’t it work?
Because it isn’t the only influence on land prices. The government wishes to transform planning restrictions, and stimulate house building; and that probably implies ‘green belt’. And there is no reason to doubt that consolidation will not continue, and small farms will continue to find the economics of farming the hardest.
I have just read, and watched your Sky News post. I now understand that your patience has ‘snapped’; because I was surprised at the severity of your initial response to my comment here this morning, after your measured Blog. I don’t think it was a great Sky debate, but these things happen. It is however, a reminder of just how big farming can play in British politics, and what emotion it creates, quite out of proportion to its economic significance; and even out of proportion to its role in feeding the nation, given we are grossly over-dependent on imports in Britain, for just about everything – including food. But I wouldn’t use the apparent absurdity of it all as a steer on how it may play out. This is Britain, the ability to disappoint is legendary.
The farms will be bought by “big agra”. Crop diversity will be further reduced. More hedgrerows ripped out. The aspirant young farmers will
not get their hands on these acres. Ownership will go from rich individuals to super-rich commercial organisations owned by even richer individuals.
Farmers have already willingly destroyed the countryside
Let’s not now pretend they are paragons of environmental preservation, because that is nonsense.
I thought Jon G was saying something quite different. I thought he was saying that no matter what happens – nothing will change; indeed concentration of ownership and corporatism will go on consolidating everything.
Of course, I can’t speak for him; but that is how I read the comment.
Presumably under the current and proposed systems, if there was a farmer running a farm started by his great great grandfather or someone, which he wanted to pass on to his own son or daughter to run. It’s likely, when he reaches retirement age, said son or daughter would already be working the farm alongside him, so if he gifts it to them then and lives another seven years there would be no IT to pay anyway. Or am I missing something?
No, you are right
And the capital gain can be deferred
What about those in their 70s, 80s, 90s who may not live 7 years. Or some younger who may have terminal.illness now. Basically they are the.ones who will suffer because the rest have time to work out what to do.
Labour brought in this relief in the first place to help.ensure food security.
Even if wealthy people.own it does it matter if they are still farming it and producing food.
I think that if Labour had sense (don’t expect it to happen) they might phase this charge in over up to 7 years.
The quid pro quo is obvious. The tax rate should then be 40%.
That would be fair.
It still not right, it raises hardly anything. They still.going to have to sell the farm to pay the bill. Noone going to buy the farm as a farm as it not a good investment so the land is going to the wealthy non tax paying, land banking developers or corporations.
They also not going to invest in the farm for next generation.
Or you just going to have big corporates owning all the farm land.
If small farmers don’t know how to make money from land it has to either get used for other purposes (preferred) or sell to people who can. Most small farms look like failed businesses.
“If small farmers don’t know how to make money from land it has to either get used for other purposes (preferred) or sell to people who can. Most small farms look like failed businesses.”
That rather undermines what you said in your post:
“I hear farmers saying that they are really not making an adequate income anymore. And, this is so widespread a complaint that I believe it” and “The price that they’re being paid for their product must simply be too low”.
A structural analysis of why the farm sector is set up to fail in this way suggested by these comments in your original post would be more to the point than a “failed businesses” blame game.
I thought it was obvious that I was making a simplifying assumption when saying that. I was also being generous. My generosity to farmers has now expired, as with most people in the country who do, I think, now feel as I do about them.
An excellent analysis!
My background is someone who worked on farms as a vet for 8 years, and who is also on the left. I initially agreed with this analysis, but over time it has sat very uncomfortably with me. It doesn’t go far enough to go on to say what needs to be done to avoid the budget resulting in the price on land continuing to rise because it still pays half the IHT of most other assets/wealth. As things stand, I can see many more small/medium farm businesses becoming unviable, and instead the land owned by private equity firms or massive agri businesses. As stated, most farms don’t make enough money to buy land, so when some farms are inevitably forced into selling land, it will mean fat cats getting even fatter, reduced food security for the UK etc. How about the government buys land for environmental schemes. How about we legislate to ensure farmers get more for what they make and the greedflation of middle men is stopped. How about some farms are exempt from IHT unless they sell the farm or generate above a certain level of profit? How about the threshold for paying is significantly increased. Yes it is up to £3 million tax free, but in some instances it is only £1.
Noted
Thanks
There’s a huge need for farmland for aspiring young farmers who are unable to pay the inflated land prices. The government could take land in lieu of tax and rent it to these new entrants. Of course County Councils used to do this but most have now flogged off their landholdings.