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!

Big changes in the agricultural budget

Alan Matthews notes in a thorough and authoritative analysis that the repurposing of the agricultural budget in England has been the most extensive in a developed country since the New Zealand reforms in the 19http://capreform.eu/agricultural-policy-reform-in-england-and-the-2024-uk-budget/80s:

Vacuuming up good farmland

Given the debate about the impact of recent proposed changes in APR on 'family farms', it is as well to remind ourselves that there are some big estates in England and not just those held in trust for the likes of the Duke of Westminster.

Sir James Dyson, the billionaire inventor of high-tech vacuum cleaners, has become an outspoken critic in recent weeks of Britain’s plan to reintroduce inheritance tax for farms. He should know: his farming empire alone could result in about £122mn in death duties. The entrepreneur — who sparked controversy by supporting Brexit then moving his eponymous technology company’s headquarters from Wiltshire to low-tax Singapore in 2019 — has developed one of the UK’s largest farming businesses, owning some of the country’s most productive agricultural areas.

The 77-year-old tycoon — who says he has a mission to “protect and nurture” British farmland — has been able to expand his agricultural business over the past decade free of the threat of death duties. The company says it has invested a total of £140mn to upgrade its farms. Dyson Farming owns at least 36,000 acres, the group says, across Lincolnshire, Oxfordshire, Gloucestershire and Somerset. It recorded profits of £5.2mn in 2023, up 10 per cent from the previous year, according to the company’s accounts. The group is now one of the top five UK producers of wheat grains, malting barley, oil seeds, peas and potatoes.

Chancellor Rachel Reeves proposed changes in last month’s Budget to measures that soften the impact of death duties: agricultural property relief (APR) and business property relief (BPR), which were designed to ensure the survival of family and farm businesses after the owner’s death. 

 “You can find cases of people who have specifically said they purchased land for the purpose of acquiring this tax break,” Arun Advani of the Centre for the Analysis of Taxation told the Financial Times.. “There are lots and lots of problems with the way we tax the transfer of assets between generations in the UK. This Budget closes some of the gap.”

From April 2026 farm business owners will have to pay IHT at a rate of 20 per cent of the value of their estate, beyond a £1mn cap.   (In practice for some family farms thiis threshold could be £3m and it can be paid off over ten years). With £612mn in net assets in its annual accounts, the changes could translate into about £122mn in duties for Dyson Farming, according to the Pink Un's estimates.

It was “wrong to assume that my investment in farming is to avoid inheritance tax”, Dyson wrote in a letter to The Times in 2019. “There are far simpler and less risky ways of achieving it than buying farmland.” A spokesperson for Dyson said that the changes to IHT introduced in the Budget would “severely undermine” efforts to improve the UK’s food security. “The Dysons’ motivation has been to bring new thinking and new technology to promote sustainable agriculture, to produce high quality food for the British market and to improve UK food security,” they said

According to the Land Registry, privately owned Dyson Farming owns 185 separately listed properties, with the bulk of the purchases coming between 2013 and 2016. In some locations, such as around Carrington in Lincolnshire, he has strategically assembled large tracts of land by buying up neighbouring properties.

Carrington and Nocton, Dyson Farming’s two major farming hubs where the head office is located, make up two-thirds of all farmland owned by the entrepreneur.  “Lincolnshire produces a third of the UK’s fresh food and has very good soil, very big fields, a good rural agricultural community, and good skills,” Dan Cross, managing director of Dyson Farming, said in an interview. “If you want to be scale farming, [it’s] a great place to start.” 

Farmageddon?

Changes in agricultural property relief are leaving farmers threatening to take their tractors to Westminster later this month and to spray manure on the capital's buildings, hardly likely to win sympathy for their cause.

The changes introduced by Rachel Reeves are an attempt to stop wealthy individuals investing in farmland to reduce their inheritance tax liabilities.

I should emphasise that I am not a tax lawyer and given that the changes don't come in until 2026, individual farm businesses would be well advised to seek appropriate professional advice.  To judge the effect of the measures, I would need to have better data about individual farms that often have complicated structures, e.g., some land is rented,

The new £1m threshold after which tax will apply at a reduced rate of 20 per cent is in addition to the existing nil rate bands which can offer as much as £1m of protection, hence many families would qualify for £2m a relief.

The Country Land and Business Association estimates that 70,000 farms will be affected, Rachel Reeves says that three-quarters won't be.   The final figure will be at the lower end of the range, in part depending on how many work arounds professional advisers can discover,   It does not mean the end of family farms, but it does pose a new set of challenges.

An interesting and well argued article by a farmer defending the decision: https://www.theguardian.com/commentisfree/2024/nov/08/farmer-glad-tax-loopholes-investor-landowners-inheritance?CMP=Share_iOSApp_Other