Farming tax targets for the Chancellor

Agricultural tax breaks are likely to be a target for Rachel Reeves as she looks for new sources of tax revenue that do not break Labour's election pledges.

First in the queue is agricultural property relief which allows owners of farms to pass on the assets in their totality free of inheritance tax during their lifetimes or in their wills.

The rationale was that it allowed succession on working farms which would otherwise be prevented by a substantial tax burden.  In practice it has encouraged wealthy individuals from outside agriculture to buy up farmland as there is no upper limit on APR (think Dyson).  

The tax relief has pushed up the price of farmland and has thus made it more difficult for new entrants to come into the sector, compounded by the reduction in local authority tenancies which offered a first step on the ladder.

However, even if APR were abolished or capped, most farmland would still qualify for business relief on inheritance tax.

What could be abolished is rollover relief on capital gains tax.   If a farmer sells land for development, it can be 'rolled over' into the purchase of farmland without attracting capital gains tax.

Given that Reeves is thought likely to increase fuel duty, albeit probably only marginally, 'red' diesel tax relief for farmers becomes even more valuable.   However, given rising input prices, uncertain harvests and volatile output prices affecting cash flow, this is likely to be left alone.

Plenty of holes in Defra Farming and Countryside plans

The National Audit Office has reviewed Defra's Farming and Countryside programme and has a number of criticisms to make.   

The Farming and Countryside Programme aims to fundamentally change England’s farms. The stakes are high for the environment, food production and the viability of the sector. To achieve the Programme’s objectives, many farmers need to transform the way they farm, and Defra’s modelling shows the extent of productivity improvements that are needed for farm businesses to maintain viability.

Take-up of schemes is rapidly increasing, but some of what Defra is paying for now are actions that, for many farmers, do not result in significant immediate change to farming practices. Instead, they are expected to encourage farmers to do more for the environment in the long-term.

Defra expects the removal of direct payments to stimulate most of the required productivity improvements. It says it has seen some improvements already as farmers adapt to life without direct payments, but the evidence is inconclusive on whether the scale of change needed will be achieved.

Farmers need quality advice and support to adapt, but Defra has not yet ensured that they can access what they need. Around half of England’s farmers say they are not at all positive about their future in farming.

The Programme will continue to change, but Defra has not yet provided a long-term view of how it expects the Programme to develop, for example, in terms of the balance of funding between SFI and more ambitious schemes.

Defra’s iterative approach to Programme design makes it difficult for farmers to plan their businesses to remain viable, to continue to produce the food we need and to achieve the Programme’s environmental objectives. Currently, gaps in the Programme’s data on environmental outcomes is limiting Defra’s ability to fully understand the impact on the environment, or whether it is on track to achieve value for money.

Full report here: https://www.nao.org.uk/wp-content/uploads/2024/07/farming-and-countryside-programme-1.pdf