Lately, the UK has been awash with stories of how recent changes to the Inheritance Tax (IHT) treatment of farmland will impoverish farmers. Frontline foghorns such as Messrs Clarkson and Farage are smelling an attack on their tax breaks while failing to remember that earlier tractor protests by farmers were against… err… Brexit trade deals.
But before we join the clamour for a re-think, let’s look at the recent gov.uk data, which shows that almost 70% of the UK’s 209,000 ‘farms’ are classified as having very low or low economic output. This raises the question of whether some are primarily farming economic benefits rather than the land itself.
The strain on family-run farms
It must be acknowledged that some genuine farmers have been dealt an unfair blow. Farmers who make a living from family-owned farms feel penalised; their notional return on capital employed is far less than that of a commercial enterprise and, as a result of high land prices, they risk IHT charges when the farm is passed on to the next generation. This is especially true where the land has been handed down through several generations since it was originally acquired, and where the real price of agricultural land has increased five-fold over the last century.
Unlike conventional businesses, where the depreciation of assets on the balance sheet serves to reduce the value of the business, farming businesses, in effect, write up the balance sheet value of their land, thereby potentially increasing their IHT liability.
A radical solution for land use
So far, so good. The farmers have a point. Maybe. However, let’s look at an alternative view through the prism of inherited wealth, which is that the present owner has been given sufficient land to run a reasonable operation, putting aside, for a moment, the value of that land for non-farming purposes.
One option would be for the state to place a covenant on farmland that treats the land as of nominal agricultural value and therefore exempt from IHT, while stipulating that the land may be sold only to the state, and at the same face value. This would exempt farmland from IHT, prevent windfall profits from speculative private sales, and free up land for societal purposes. As high house prices in the UK are often based on the ‘rule of thirds’, i.e. the sale price is made up of one third land, one third build costs and one third profit, this could be a way of achieving those elusive house building targets at a significantly lower cost.
Setting the feathers flying
No doubt this will cause more feathers to fly than would a fox in a henhouse but, in the brave new world of tackling the UK’s growing wealth inequality, it merits more than passing consideration. It’s clear that a balance must be struck between preserving the livelihoods of family farmers and addressing broader issues of wealth inequality and land use. Innovative solutions, such as covenants on farmland, could offer a way forward that would protect agricultural heritage while opening up opportunities for social progress.
Whether through policy reform or public debate, these questions deserve more than just a fleeting glance; they need thoughtful, long-term strategies to ensure fairness and sustainability for future generations.
We want to hear your views. Please send any comments to editor@westenglandbylines.co.uk
