FARMERS parked their tractors firmly on the Government’s lawn during a demonstration against planned changes to inheritance tax on agricultural property.
An estimated 10,000 farmers descended on Westminster on Tuesday (November 19) to protest changes which would see farmers pay 20% inheritance tax (IHT) when passing on property worth more than £1 million.
It came in response to changes outlined by Chancellor Rachel Reeves in her October Budget statement, which would bring farmers into the IHT framework.
Previously, they had been allowed to pass on farms and agricultural property to an unlimited value without paying IHT.
The Chancellor, and Environment Minister Steve Reed (Lab), said the changes were necessary to fill a £22 billion black hole in the country’s finance left by the Conservative Government – and to pay for public services.
But farmers say the changes are unfair, meaning smaller ‘family farms’ will be forced to sell land to cover the tax due.
Here, we try to look at all angles of the debate – and present the facts as given by all sides… Hopefully, it will help you form a clear view of what is actually happening, and what it actually means.
What does the Government say?
“Only about 500 estates a year will pay more under the new scheme than they do today,” he said.
“Most farm-owning couples are able to pass on up to £3m without paying any inheritance tax at all. Anything beyond that will be taxed at half the rate paid by everyone else, and their heirs can spread the payment over 10 years instead of having to pay it all at once.
“This is fair and balanced.”
Environment Secretary Steve Reed. Picture: UK Parliament
Mr Reed also targeted rich investors, who he said have been “buying up land to avoid their own inheritance tax”.
“This has forced up rural land prices, robbing young farmers of the dream of owning their own farm,” he said.
He added: “It’s become the most effective way for the super-rich to avoid paying their inheritance tax – and it’s costing other taxpayers a whopping £200m a year.
“This is money that should be invested in our schools, health services, transport and other public services that farmers and families in rural communities rely on.”
And the farmers?
Many farmers, and predictably those ‘super-rich’ investors, do not agree.
Among them is Jeremy Clarkson, who in 2021 told The Times the IHT benefits were “critical” to his decision to buy a farm on the Oxfordshire/Gloucestershire border.
He said then: “Land is a better investment than any bank can offer. The Government doesn’t get any of my money when I die. And the price of the food that I grow can only go up.”
However, interviewed during the protest on Tuesday, Mr Clarkson backtracked on these comments, telling the BBC his comments on tax were made “jokingly”.
“The only reason I said that (about IHT) is because I actually bought the farm because I wanted to shoot, but you can’t go around saying ‘Oh, I wanted to shoot’ because then you get shouted at by animal enthusiasts,” said Clarkson, who has an estimated fortune of more than £50m.
“I jokingly said, ‘Oh, it’s just inheritance tax’, and now of course it’s come back to bite me on the arse, but it doesn’t really matter because we’re here to support farmers, we’re not talking about me.”
Jeremy Clarkson has backtracked on comments he made regarding inheritance tax. Picture: Amazon Prime
Away from Clarkson’s Farm, as it were, the National Farmers Union (NFU) and the Country Land and Business Association (CLA), have also opposed the changes.
Gavin Lane, deputy president of the CLA, said: “Either the government isn’t being honest with the public about the true impact of these reforms, or they don’t understand the nature of rural businesses.”
The CLA claimed 70,000 farms in the UK could be impacted by the changes – a far cry from the 500 Mr Reed vaunted.
But is that right?
What about tax experts?
Founder of Tax Policy Associates, Dan Neidle, and Arun Advani, associate professor at the University of Warwick, disagree with the CLA’s figures.
Mr Neidle, as we will explore further, says the number of people affected by the tax each year in the UK could be as low as 100 – more than some Somerset MPs claim will face payments in their own constituencies. So there is clearly a lot of disagreement…
Mr Advani said the figures did not point to thousands of affected estates.
“Among estates that benefited from agricultural relief between 2018 and 2020, less than half (44%) of individuals had received any trading income from agriculture at any point in the five years prior to death,” he said.
“Income from agriculture made up less than a quarter of their income on average.
“Of the remainder, 51% received income from rent, which is consistent with them being landlords rather than active farmers, although we cannot rule out that they were actively farming via a company.”
The Resolution Foundation also welcomed the changes, claiming the relief for landowners and large farms was “significantly contributing to ‘horizontal inequality’, whereby estates with similar wealth levels faced different effective tax rates”.
It said the planned changes would “only affect a small number of estates”. Estates like Mr Clarkson’s, we should note.
The Institute for Fiscal Studies (IFS) also backed the changes, saying the current situation had been used to “open up channels to avoid the tax”, and that even with the proposed changes, farmers were allowed to pay a lot less IHT than non-farmers.
“What the budget did was reduce the amount of additional relief that farmers get on agricultural land,” it said.
“It still means they’ll be significantly more generously treated than the rest of us and still more generously treated actually, than farms used to be in decades past.”
How have our MPs reacted?
On Tuesday, while Mr Clarkson was the focal point for the protest, MPs were keen to welcome farmers to the capital and listen to their concerns.
Liberal Democrats Gideon Amos (Taunton and Wellington), Anna Sabine (Frome & East Somerset) and Adam Dance (Yeovil) were among them.
They too have claimed hundreds of farms in their constituencies will be affected by the changes – in contrast to claims by the Government, the IFS, the Resolution Foundation and Prof Advani.
MP Gideon Amos (Lib Dem, Taunton & Wellington) with farmers
Mr Amos said: “It’s completely unjust to hit smaller farms with a massive tax hike so soon after farmers have been let down by government underspending the agriculture budget over the past three years by a staggering £358m.
“Farms are also facing increased wages, higher National Insurance costs and, following Brexit, the ending of the Basic Payments Scheme which will now accelerate thanks to the recent Budget.
“Most family farms are not super rich businesses. They’re not billionaires buying up land just to avoid paying tax, something which should certainly be tackled.
“Some might have a big asset value but are often cash-poor and will be unable to raise the money needed to pay the new tax without breaking up and selling off parts of their farms.
“I, and the Liberal Democrats, are determined to oppose this tax on small, family farms, and it was good to reassure local farmers visiting me in Parliament today of my support.
“Their visit underlined for me how all these new taxes are putting off a new generation who are worried land will go out of production, reducing our food security.
“Government may say only 28% of farms will be affected, but there are serious concerns about how those figures were reached.
“The National Farmers’ Union says it’s more like two thirds of farms which will be hit with this higher tax.
“We need the more sustainable food production that many farms have moved towards. The government loading costs onto small farms will put all that at risk.”
Ms Sabine went on: “Family farmers across Frome and East Somerset are working hard to continue to be viable in an industry that has been consistently undermined by the Conservative party and now the Labour Government as well.
MP Anna Sabine (Lib Dem, Frome & East Somerset) with farmers in Parliament
“They are diversifying and implementing sustainability practices but receiving no support from a government that doesn’t seem to care about rural communities.
“The demand for food is there and will continue to be more and more important as climate change moves to change production abilities worldwide, if we don’t start supporting local farmers and rural communities now, the consequences for the nation could be catastrophic.”
And Mr Dance added: “The government is lumping working farms together with hobby farms, small non-commercial holdings, and even land investors. In reality, this change will hit about 120 working family farms in the area — far more than the government wants to admit.”
He added: “The NFU shared examples of families in the region who have worked the same land for generations.
“Under this new policy, many may be forced to sell off parts of their farms just to cover inheritance tax. This wouldn’t only harm these families but could also make their farms non-viable, threatening livelihoods and local food production.”
MP Adam Dance (Lib Dem, Yeovil) protesting the changes to IHT
Sarah Dyke (Glastonbury & Somerton), said after the protest: “Today I spoke to a fifth-generation farmer who had always planned on passing on his farm to his kids, but the family farm tax is the straw that broke the camel’s back. They’ve put their farm on the market and are looking to get out. This is a common theme I’m hearing: for farmers already stretched thin with rising costs, climate adversity, the botched subsidies and post-Brexit trade deals, this tax could be the final straw.
“Due to the previous Conservative government’s failures in transition to ELMs payments, spiralling energy and input costs, climate change, poor harvests and dwindling income, many farms are under incredible pressure as it is. We will lose farms with this additional tax. The Labour government risks making the same mistakes as the Conservatives: undermining farmers’ ability to sustainably and profitably feed the nation and protect the natural environment.
“I’ve heard my constituents’ concerns today, and that’s why this afternoon I pushed the Secretary of State on specifics in the EFRA oral evidence session. This proposed tax must be scrutinised and stress tested and the government held to account. I’m proud to be part of that work; a cornerstone of our democratic process.”
Sarah Dyke on the march in London alongside the likes of Lib Dem leader Ed Davey, deputy Daisy Cooper, and former leader, Tim Farron
In a recent column for your Leveller, MP Ashley Fox (Conservative, Bridgwater), said: “Labour’s increase in inheritance tax strikes at the heart of family businesses and farms.
“These enterprises rely on capital-intensive assets like land and machinery, and a 20% tax on inheritance could mean the breakup of farms that have supported families and local economies for generations.”
Can farmers protect themselves from the IHT changes?
In short, yes.
Tax experts like Mr Neidle have pointed out how farmers, by planning ahead, can avoid any changes to their IHT situation.
For example, gifting the assets to family seven years prior to their death – as many currently do with property like houses and yes, land – would avoid incurring any IHT.
Mr Neidle analysed the projections by the likes of the CLA and NFU in a post on social media – and agreed with the Government’s projections of those being affected sitting at the lower end of the spectrum.
He even branded claims by the likes of CLA, “hyperbolic fake stats”.
“The Country Land and Business Association says the new £1m cap on agricultural inheritance tax relief will “harm 70,000 farms”. That’s 1/3 of all farms,” he said.
“What does the actual data show? Less than 500 farms/year will be pay more tax as a result of this change every year. Possibly as few as 100.
“Why 500? Because … only 500 farm estates claimed agricultural property relief (APR) of more than £1m in 2022.
“But that overstates the issue. Married couples can easily claim the £1m cap twice. Small farmers without other assets can use their nil rate band. So for a married couple running a farm, it could be worth £2.65m before the restriction on the relief costs them a penny.
“That could mean as few as 100 farms per year are affected. And the 20% tax is only on the excess over the threshold, so for most of the 100, the additional tax will be reasonably small. Insure against it when you’re young(ish). Give some/all to your kids when you get older.
“And the data shows that most of the cost of the tax increase will be borne by a few very large estates. In 2022 2% of agricultural estates – just 37 – claimed an average of £6m.
“That’s what this is really about – not 70,000 farms. So let’s drop the hyperbolic fake stats.”
Dan Neidle, founder of Tax Policy Associates, called many of the figures touted around the changes as ‘hyperbolic fake stats’
So the debate is complex, and arguably clouded by the likes of Jeremy Clarkson, who are wealthy ‘investors’ who have in the past openly admitted part of their reasoning for buying farmland is to avoid inheritance tax, or as he put it, to ensure the Government “doesn’t get any of my money when I die”.
He is, by his own words, among the “super-rich” who are using the current system to “avoid paying their inheritance tax” Mr Reed called out.
And is if to confirm that, speaking to the BBC during Tuesday’s protest, Mr Clarkson himself said he would simply plan ahead in order to avoid paying IHT.
“People like me will simply put it in a trust and, as long as I live for seven years, that’s fine,” he said. “But it’s incredibly time-consuming to have to do that. And why should all these people have to do that? Why should they?”
Others can do the same – and many, particularly non-farmers, already do.
So, it seems even if people are affected by the changes, they are planning to avoid it.
Government examples of how the changes will work
The Government has given two examples of how the changes could impact ‘regular’ farms.
They are:
“Example 1: farm owned by two people
Two people who jointly own a farm will be able to pass on land and property valued up to £3 million to a child or grandchild tax free. That is made up of £1 million, where they combine their standard £500,000 tax-free allowances (£325,000 for nil-rate band + £175,000 for residence nil-rate band), and on top of that, an additional £1 million tax-free allowance each for agricultural property inheritance.
Person 1: £325,000 + £175,000 + £1 million
Person 2: £325,000 + £175,000 + £1 million
Total passed on to direct descendant tax free: £3 million
This would be £2.65 million if leaving to anyone else that is not a direct descendant as would no longer be able to access the additional property tax-free allowance (£175,000 each).
Person 1: £325,000 + £1 million
Person 2: £325,000 + £1 million
Total passed on to non-direct descendant tax free: £2.65 million”
“Example 2: farm owned by one person
One person who owns a farm will be able to pass on land and property valued up to £1.5 million tax free to a child or grandchild. That is made up of their standard £500,000 tax-free allowance (£325,000 nil-rate band + £175,000 residence nil-rate band), and an additional £1 million tax-free allowance for agricultural property inheritance.
Total passed on to direct descendant tax free: £1.5 million (£325,000 + £175,000 + £1 million)
This would be £1.325 million tax free if leaving to anyone else that is not a direct descendant as would no longer be able to access the residence nil-rate band.
Total passed on to non-direct descendant tax free: £1.325 million (£325,000 + £1 million)”
So will farmers and investors in farmland still pay less inheritance tax than me?
The short answer again, is yes.
In recent decades, for many given reasons, farmers have been exempt from paying inheritance tax when passing on farms upon their death.
The proposed would change this, but still mean farmers and owners of agricultural land would pay half the rate of IHT (and with higher thresholds) than the ‘average’ household – about five times more, in fact.
Another Government example – of IHT for non-farmers – showed:
“The standard Inheritance Tax rate is 40%. It’s only charged on the part of your estate that’s above the threshold.
Example: Your estate is worth £500,000 and your tax-free threshold is £325,000. The Inheritance Tax charged will be 40% of £175,000 (£500,000 minus £325,000).
The estate can pay Inheritance Tax at a reduced rate of 36% on some assets if you leave 10% or more of the ‘net value’ to charity in your will. (The net value is the estate’s total value minus any debts.)
“Reliefs and exemptions: Some gifts you give while you’re alive may be taxed after your death. Depending on when you gave the gift, ‘taper relief’ might mean the Inheritance Tax charged on the gift is less than 40%.”
You may agree with this, due to the importance of farming, but the Government says it is targeting those who are using the scheme to take advantage of the tax break, and that ‘smaller’ farms would not be affected.
In summary…
Any ‘new’, or increased tax is unwelcome. No one really expects anyone to applaud an increase in taxes – particularly if it affects them.
That is particularly true of any industry/individual/business that has, for decades, simply not paid any tax at all. To suddenly be told you might have to must be a shock.
However, as we have seen, some of the sensational numbers banded around seem to be overblown, at best, and at worst, simply blown out of all proportion in a bid to get the Government to u-turn on the tax.
We would be best served, perhaps, by ignoring the likes of Clarkson. He is exactly the person the Government would like to see pay some tax – but will probably still avoid it, as will many others, rich or not. So, if we’re honest, he doesn’t really have skin in the game, and is just annoyed he has had to sort his affairs to still not pay any inheritance tax (all the while making millions off using his farm as a backdrop to a huge Amazon Prime TV series).
The MPs’ reactions are interesting. Of course, they would rather (as would we all) their constituents – many of whom may be farmers – were not being saddled with a fresh tax. These are hard times for farmers, and they need more support.
That said, the morning after this protest, a statement from an MP dropped in to Leveller Towers calling for more money for bus services. Again, a perfectly acceptable plea.
However, and we’re all guilty of this – we want ‘more money’ for things; from the NHS to schools, roads and yes, farming.
But where does that come from?
We’ve all heard the slogan, ‘the magic money tree’, used to lambast Jeremy Corbyn’s Labour party in 2017 and 2019.
Yet these continued demands for improved funding for public services, for shorter NHS waiting lists, better roads, lower taxes and increased support for social care etc, all require one thing – money.
It is easy for us to want these things – indeed, to demand them – and at the same time refuse any demand for anyone to actually pay more for them in return. It’s clearly unrealistic.
The Government has to actually look at how it gets this money. You may not agree with how they are doing it, but they have decided it would be fairer for farmers to pay something in inheritance tax (though still a fraction of what most do), to help raise some of that money for roads, hospitals, schools etc, as the Environment Minister said.
These proposals would see farmers pay a 20% inheritance tax on, if they’re honest about how they can do it, anything over £3m for a couple. That’s a lot of money, or ‘asset’ – £3 MILLION – to receive for nothing.
And the same does not apply for ‘normal’ folks, with a house they want to leave their children, for example. They pay 40%, and the tax-free bit is a lot lower.
So is Steve Reed right, is this actually a ‘fair’ compromise for farmers, rather than the ‘tractor tax’ the Liberal Democrats claim? Or is it unfair?
You be the judge, not Jeremy Clarkson.
Extra reading:
If you’re so inclined, here are a number of articles and information on the planned changes to inheritance tax:
- What are the changes to agricultural property relief? (gov.uk)
- Farmers protesting about inheritance tax have got their economics and arguments wrong (Funding the Future)
- The agriculture budget and IHT – a timeline of NFU lobbying (NFU)
- Changes to inheritance tax – frequently asked questions (CLA)
- The powerful interests fighting Jeremy Clarkson’s countryside culture war to avoid inheritance tax (Byline Times)
- Jeremy Clarkson to defy doctors and lead 20,000 farmers protesting against Labour’s hated ‘tractor tax’ despite heart op (The Sun)
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