Will the UK Government give away the farm?

The last Government (and Liz Truss in particular) concluded farm trade deals with the likes of Australia which were seen to potentially disadvantage UK farmers.

However, a more serious threat has always been a trade deal with the US with its mega food and farming corporations.   Much of the focus has been on the notorious chlorinated chicken, but if it was labelled properly, UK consumers could avoid buying if they wished (although it might be more difficult to avoid in takeaways and the catered food sector more generally).

The hope of a bespoke UK trade deal with the US may be a mirage.   However, it is clear that the UK Government has been prepared to make concessions on farm trade to secure a deal.   For its part the US administration needs to offer something to its rural base which may suffer from other measures.

Admittedly, the Government has been reluctant to make concessions on what are known as sanitary and phytosanitary measures, for example it is not willing to give ground on animal welfare or food hygiene standards.  This means that hormone treated beef will not arrive in the UK.

Britain is a major exporter of salmon, chocolate and cheese to the US.  Cheddar shipments have grown from about 4,500 tonnes in 2020 to more than 6,000 tonnes last year.   These are generally price sensitive products.

However, it does seem prepared to give ground on tariffs of up to 12 per cent on US chicken, pork and beef.   That could have significant implications for the UK food industry.

This time farmers have a justified grievance

Under the CAP farmers received a 'basic payment' with larger scale farmers getting more.  How this was spent was only loosely constrained so in practice it could be used for consumption as well as investment in the farm business.

Michael Gove came up with the idea of 'public money for public goods'.  In other words, farmers should be subsidised to farm more sustainably and benefit the environment.   (Note that we are talking just about England, policy in the devolved regions is different).

It took far too long to get the Sustainable Farming Incentive up and running and now it has been closed without the required six weeks notice because the money (£1.8 billion) has run out.   Uptake covers just 50 per cent of funding against a 70 per cent target.

Defra is not a 'protected' department and the Government is short of money as it tries to ramp up defence expenditure.  Nevertheless, some calculations suggest there could be headroom of £400m in the Defra budget.  Perhaps some extra money could be found, certainly wildlife groups hope so.   For a fuller critique: https://www.thetimes.com/article/510e633d-69f1-40fc-bba8-78ef0ce8d9c4

I think that farmers are increasingly realising that the Treasury is not going to back down on the changes to inheritance tax.   Some farmers are talking of going 'full French', but any government that surrenders to direct action risks its authority.

Personally I would have looked at reducing or eliminating the capital gains tax rollover relief for farmland sold for development, but that might be seen at odds with housing policy.

Farmers will still pay half the prevailing rate of inheritance tax and get 10 years back to pay the bill free of interest, a privilege the rest of us don't get.

Yields from farm inheritance tax changes uncertain

The Office for Budget Responsibility has brought out a short report on the proposed changes in inheritance tax for farmers and in Business Property Relief: https://obr.uk/docs/dlm_uploads/IHT-APR-and-BPR-supplementary-release-Jan-2025.pdf

It is necessarily a very technical report, but the main takeaway seems to be the uncertainty associated with the revenue yields which are the stated main objective of the policy.  In other words, the political cost may outweigh the financial gain.   Some would argue that changing the rollover relief for selling land for development would yield more revenue and cause less pain.

Meanwhile a number of major supermarkets, most recently Tesco and Lidl, have declared their opposition to the proposed reforms.  Of course, words are cheap and major supermarkets have been squeezing farmers margins (or worse) for years.

Farmers are notoriously slow in many cases to put succession plans in place, but could be allowed more time to do so, while the precise calculation of the threshold for liability is complex but needs further examination.

Most farmers voted Tory in 2024

After many declaring that they were fed up with the Conservatives, the majority of farmers stayed close to their traditional allegiance and voted for the Tories after all, according to a survey conducted by Farmers Weekly.  (N = 767, 'strong spread by region and farm type', but owner-occupiers may be over represented. Self-selected sample).

Prospective voting surveys showed farmer support for the Conservatives decline from 72 per cent in 2020 to just over 40 per cent in 2024 before the general election.

In the event 57 per cent voted Conservative, while 15 per cent opted for Reform.   Despite the success of the Liberal Democrats in rural constituencies, only 8 per cent voted for them.  4 per cent voted for other (probably mainly the Plaid and the Scottish Nationalists).   Just 4 per cent voted for Labour with the balance made up by non voters and 'prefer not to say'.

The APR controversy continues

I am not a tax lawyer, specialist agricultural accountant or land agent, so my advice to farming relatives and other farmers I know is to seek professional advice on the implications of the Government's changes in APR for their businesses.  They have until 2026 to sort things out and in my view the Government should allow an extended period to sort out unresolved succession issues.  Succession planning is often left far too late in farm businesses.

Many farms have diversified and that is a further complication as BPR comes into play as it does on the farm itself.

It has to be noted that the wealthiest landowners in the country have their farms already placed in trusts. There is no doubt, however, that speculators from outside farming have been buying up parcels of land as a hedge against inheritance tax.

Farm businesses still attract a preferential rate of 20 per cent payable over 10 years. The heirs of my relatively modest estate will have to pay 40 per cent and after six months the outstanding sum will attract 7.25 per cent tax.  Probate cannot be secured in that period.

I think it was ill advised to make a further in the basic payment to farmers when the new environmental supports are largely not ready to be used.  Defra has been hollowed out more than any other government department.

Arguments about the numbers

Tax lawyers have questioned Sir Keir Starmer’s claim that a “typical family” farm will receive a £3mn exemption from inheritance tax, calling it “misleading”, reports the Financial Times. The prime minister has repeatedly used the number when defending the controversial Budget decision to impose inheritance duties on agricultural assets above £1mn, saying earlier this month that “the threshold is £3mn” in a “typical family case”.

But lawyers argue that the government’s figure requires farmers to meet complex conditions, including potentially splitting up a farm’s ownership when one spouse dies. “It’s not necessarily that the £3mn figure that’s been bandied about is wrong, it’s more that it’s misleading,” said Emma Haley, legal director at law firm Boodle Hatfield. “The difficulty is there are various traps that can limit the allowance that everyone has.”

The exemption is made up of £1mn of agricultural property relief, which comes in from April 2026; a £325,000 allowance for all categories of assets; and £175,000 for passing on a house to children or grandchildren. This amounts to £1.5mn that can be passed by a spouse directly to their children. Both partners would need to pass this on to reach a £3mn exemption.

However, if a farm is owned by one person or a couple that is not married or in a civil partnership, the £3mn allowance cannot be reached. The residential exemption is also reduced if either partner’s share of the farm is worth more than £2mn, and is removed entirely at £2.35mn. This means that for a couple to reach the £3mn allowance, the first spouse to die would have to leave £1mn of their estate to someone other than their spouse to avoid the value of the second spouse’s estate surpassing £2mn.

The result is that farm ownership would probably have to be split up to qualify for the full relief. “On the first death, you’re going to have to make sure you pass the estate to somebody else and they will then become a joint owner with the spouse,” said Haley at Boodle Hatfield.

“It becomes very messy.”  Camilla Wallace, senior partner at Wedlake Bell, said the £3mn figure was “not likely to be realistic when you drill down” and calculated that £2.65mn was a more likely amount for larger farms to be able to claim.

A government spokesperson said: “Two people with farmland can pass on up to £3mn without paying any inheritance tax. Our reform to agricultural and business property relief will impact around 500 estates a year.” “This is a fair and balanced approach which fixes the public services we all rely on,” they added. The government has said the policy, which applies to farms worth more than £1mn, would only apply to around a quarter of commercial family farms.

But the National Farmers’ Union has said the true figure is three quarters of farms.  While most of the conversation about the relief has been focused on farmers, the same will apply to business-owners as the Budget changed the rules for business property relief (BPR) in the same way as for agricultural property relief. Family farms often have to use both APR for their land and BPR for their livestock and machinery. The Treasury estimated that the changes to APR and BPR would raise a total £1.8bn by 2029-30. Calculations by consultancy CBI Economics estimate that only £387mn of that figure would be from APR.

Why internet storm about Bovaer is mistaken

I was interested to read the following statement from Milk & More who deliver my milk, who no doubt have seen an opportunity to seize a commercial advantage over Arla who are being boycotted by some consumers after an internet and media storm:

You may have seen recent news about the use of the Bovaer additive in the production of some dairy products - an experimental feed additive being trialled by some farms selling milk to larger companies and retailers to help reduce methane emissions from cows. We want to confirm that Milk & More isn't involved in these trials, and neither are the farms we work with. As an independent company, we're proud to partner with British farms that uphold high standards of animal welfare, food safety and environmental responsibility. Our fresh British milk is just as it should be - free from additives, fresh from trusted farms and delivered to your doorstep with care. With Milk & More, what's in your glass is simple: British milk. Nothing more, nothing less. My comment is that there is no evidence that this additive reaches the milk itself and we need to try out ways of reducing methane emissions from dairy cattle.  Unfortunately, one start up that hoped to achieve this objective has just collapsed. Bovaer is used in many countries including major dairy producers. The Food Standards Agency report is here: https://www.food.gov.uk/our-work/annex-m-rp1059-3-nitrooxypropanol-as-a-feed-additive-for-ruminants-for-milk-production-and-for-reproduction

Could land prices come down?

I have been having a bit of a debate on social media with a dairy farmer and former Nuffield scholar.  He says, with justification, that farming is hard physical work, dangerous and offers returns of 0.5 to 1 per cent.

My response was in that case why not sell up, reinvest the capital and have an easier life?   The standard response is that it's 'a way of life'.   I am familiar with this response as my nephew is a seventh or eighth generation farmer.

Of course, it is way of life that people are entitled to choose, but don't complain too much about the hardships.   To me, it doesn't seem an enviable way of life, but opinions clearly differ.

Why are returns from farming so low?   The removal of CAP subsidies after Brexit hasn't helped and it is possible that some farmers are having buyers' regret..  I remember touring the North of England explaining some of the risks to farming audiences during the referendum campaign.

There has been a shift of power down the food chain from farmers to supermarkets that seek the lowest possible prices for their customers.  Farmers' margins have been squeezed.   Supermarkets impose demanding contracts and there have been allegations of malpractice.

However, another factor has been people buying up farmland as a hedge against IHT.  They are not necessarily buying whole estates as in the case of farmers' hero Jeremy Clarkson, but often smaller bundles of land that can be rented out to farms seeking to expand.

According to an AI  overview, 'A variety of buyers purchase farms, including private investors, institutional investors, and lifestyle buyers. In 2023, non-farmers bought more than half of farms and estates sold in England, with private investors accounting for 28% of transactions.'

Will APR's reduction (remember we did not have this relief before the 1970s and 1980s) push down land prices and make it easier for innovators to enter the industry other than by succession?

The honest answer is that I am uncertain.   An interesting article in Farmers Weekly recently argued that land prices revert in the long run to a ratio used at the time of the dissolution of the monasteries by Henry VIII.  But in the long run, as Keynes said, we are all dead.   There have been some big fluctuations in between, e.g., after the passage of the Corn Laws which lay the foundations of a cheap food policy.

As for the APR proposal itself, no new Government is going to U turn on a central element in its budget, even if the revenues to be derived are not great.

However, given the conflict over the likely effects (partly arising because different things are being measured), it is worth having an independent review of the evidence to ensure that the threshold does not affect too many smaller working farms.

Given anecdotal evidence on the number of very old farmers who have not gifted their farms, there might be a case for relaxing the seven year rule for those over a certain age.  Mind you, I would quite like for my children for liable for just 20 per cent over 10 years on my relatively modest estate!