In the news

I know we're talking IHT but on topic, due to the noise from Farmers there's going to be plenty more industrial agri hit pieces over the coming weeks.

When inspections did take place, 22% of farms were found not to meet animal welfare law standards but only 1% of non-compliances were prosecuted, a slight increase from 2018-21.

https://www.theguardian.com/environment/2024/nov/20/uk-failing-animals-with-just-one-welfare-inspector-for-every-878-farms-report

The plus side being more people will hopefully understand how fucked parts of agricultural practice are in this country, in terms of welfare, ecocide, economic viability of food production, farmer class priveleges, etc.

There needs to be a serious conversation about responsibsilities of entities that provide in essential sectors like food production, that also already receive incredibly heavy public purse subsidies (that invariably partly gets creamed into private profit). State needs to get serious about taking interests in agri if anything as a better foothold to regulate (practices and prices/value).

Not just that but also in step with wider societal trends re: fall in handing down professions / vocations, a significant number of farm kids dont actually want to go into farming.

What happens then?

I'd want to see data which supports the claims made by the secretary of state that 3/4 of farms will be unaffected by this change. As I explained in my post above, the government's own data doesn't support those claims, although I can totally see how the secretary of state made this mistake.

I think it's quite hard to get your head round the fact that an asset worth, for example, 7 million (the whole farm, so including both APR and BPR on death) only generates income of £45k per year for the whole household (this is the average profit of farms last year). It feels like it's not worth doing to me, and indeed I would never do it.

My point is that if the farm has to be split up to pay IHT, that will over time reduce the amount of working farms. I personally see that as a negative for the whole country that could be avoided while still making sure that buying agricultural land, assets, or whole farms can't be used as an IHT tax dodge.

My own anecdata is that the heir to the farm lives on the farm with their family and helps with the farming until they take over from the parent. It's a multi-generational thing even before anything gets inherited.

I believe that if you inherit a farm, immediately stop farming, and sell the farm there is no mechanism to go back and apply IHT. That's definitely a loophole you've thought of that should be closed, IMO.

So that £45k is £22.5k per farmer worker in your example? The heir lives there with their family too?

What do you think will happen to that land?

Interestingly tried a google average life expectancy of farmers, got an interesting AI side note.

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Very valid question :)

It's because if forced to sell assets to cover an IHT bill, the working farm could become non-viable.

To give you an example, let's say I inherit a 500 acre arable farm with a farmhouse on it, several barns and grain sheds, a couple of tractors, a manitou, and a combine harvester. Let's say it's worth 5 million.

If I've got to pay IHT on everything over 3 million at 20%, that's 400k I need to find. Maybe I could sell the combine harvester for that, but then I wouldn't be able to crop my wheat without paying a contractor who owns their own combine harvester. I can't sell the tractor or the grain sheds because without them I can't do any arable farming. So I realise that I'm going to have to sell 40 acres of fields to cover the bill.

So I do what I need to do and sell those fields to another farmer or landowner. Now I've only got 460 acres of fields on which to grow my crops, at which point it may well no longer be a financially viable farm. If that's the case, I'm forced to sell the farm, which is now not a viable business to farm. This is how we remove a working farm from the economy.

Best case scenario it is bought by a landowner who rents it to a tenant farmer who finds a way to make it viable. Most likely scenario, however, is that other parts of the farm become unfarmed. Let's say the farmhouse and 10 acres are sold to a multimillionaire. The rest is sold to existing local landowners who rent it out to other farmers or smallholders.

To me that feels very different to something like a construction company because the difference between assets and profit isn't so cavernous. If the heir to the construction company has to sell some of their tools, vans, and storage space to cover the IHT bill it isn't such a big deal. The business could still be viable on a smaller scale.

Yep exactly, it's very little to support a family. In my fictional example under these new rules I think the heir would sell some land to cover the IHT bill and be alright, but reduce their profits. That would continue each generation until either there is no heir who wants to take over the farm, or the farm becomes non-viable because they don't have enough land to achieve economies of scale.

Perhaps the real answer to these problems is to figure out a way to massively reduce land prices. I don't know how we could do that, though.

that's 400k I need to find

£400k split over ten years interest free though which makes it a bit more manageable.

Also worth noting generally that there are other exemptions for passing on family businesses (not farms) and this is bringing farming into line with them. You can be left a construction business worth £1m and won't pay tax on that.

This is pretty concise and from what I can tell, accurate.

https://x.com/Channel4News/status/1858955436537286975

Ok - that's a reasonable explanation that wasn't clear to me, thanks.

That is tricky then. I'd have to be convinced that it's enough to warrant exemption vs a special (and possibly, very special) treatment of paying the tax due - it's only a once in a generation tax after all.
I can see a case for government interest in farming given the food supply just going out of business is not a viable proposition.

However, I'm now out of my comfort zone of making sweeping generisations about farmers :)

It's because if forced to sell assets to cover an IHT bill, the working farm could become non-viable.

Sounds as though the farm is already unviable if it cannot meet tax liabilities.

To give you an example, let's say I inherit a 500 acre arable farm with a farmhouse on it, several barns and grain sheds, a couple of tractors, a manitou, and a combine harvester. Let's say it's worth 5 million.

Average farm net worth is £2.2m. Worth noting that most farms this value (£5m) tend to be land owning farmers rather than tenant and falls into a very slim top percentage.

https://assets.publishing.service.gov.uk/media/660fdb6763b7f80011de191b/bs_mean_net_worth_per_farm_2022_23.csv/preview

So I realise that I'm going to have to sell 40 acres of fields to cover the bill.

Yes, in this story – you should. Sell them so people can build houses, solar, turbines or more agriculturally diverse smaller farms and save us all.

There were a total of 462 inherited farms valued above £1m in 2021-22, according to HM Revenue and Customs (HMRC), external:

• 345 valued between £1m and £2.5m
  
• 80 at £2.5m to £5m
  
• 37 above £5m
  

I'd want to see data which supports the claims made by the secretary of state that 3/4 of farms will be unaffected by this change

https://www.lfgss.com/comments/17587245/ ?

I'm totally with you on solar and turbines. You can even do both (some types of farming) and renewable energy on the same piece of land.

Fields that aren't next to a road would likely be unsuitable for housing. Unless you really couldn't avoid it, those wouldn't be the fields you'd sell.

Thank you, and sorry that I missed this earlier. I'll have a read through and educate myself.

No need to apologise, I only skimmed at work yesterday.

Also I appreciate that farming is important, but I think it would be much better to directly incentiveise it, and to target aid better rather than through IHT loopholes

Sounds as though the farm is already unviable [in the past] if it cannot meet [future] tax liabilities.

How on earth does that make sense?

How does making a farm unviable by placing a new tax burden on it show that it was unviable under the previous tax regime?

If I've got to pay IHT on everything over 3 million at 20%, that's 400k I need to find.

That's where the (life) insurance recommendation comes from.

Pass the farm down now before you die.

If you die within 7 years then the £400k IHT is due, but £400k of life insurance cover for someone around age 50 is £20/month. Obviously it'll be higher for those in their 80s. Even if it is £100/mo for someone in their late 60s you can reduce that £400k IHT burden to just £8400 (7 years of £100/mo) of life insurance.

So you pass the farm down early and buy (relatively) cheap life insurance to cover the subsequent IHT bill in case you die before the 7 years are up.

And, obviously doesn't help people who didn't plan ahead like this.

If farming businesses are so close to the edge that 500 farms a year can't weather the impacts of IHT, then they certainly could not navigate the financial shock from other risks ... flood, blight, accident, liability, etc.

Changes to the industry and broader economic contexts are just other inevitable risks.

I guess you either believe they should have IHT relief (for whatever reason, I literally cannot think of one) or you think they should not. Personally I would rather they pay in and take out in the form of better agri subsidaries when and where hard hit farms need it.

only generates income of £45k per year for the whole household (this is the average profit of farms last year).

"Income" and "Profit" are two wildly different things as I'm sure you know. Many businesses (not just farms) with large incomes are run in such a way as to generate as little profit as necessary. All manner of things that non-farmers have to pay for (heating, vehicles, etc) just get paid for by the business side of things.

I don't doubt there are many farms that are just scraping by but that's not the fault of a future change in IHT.

I don't understand this logic. People's brains seem to just break when discussing this. Placing an additional tax burden on anything makes it harder to afford doing that thing. That reduces the number of entities that can afford doing that thing. Saying "well they were sailing too close to the wind anyway" doesn't change the fact that it's the new tax that's pushed them over the edge nor the fact that many businesses that weren't sailing close to the wind (in terms of the next flood, blight, accident etc.) now will be because they're also bearing a greater tax burden.

Can we at least agree that taxing something makes it less affordable?

My own anecdata is that the heir to the farm lives on the farm with their family and helps with the farming until they take over from the parent. It's a multi-generational thing even before anything gets inherited.

In that situation they just need a bit of tax planning and pass the farm on early. Don't wait until death.

Although that does risk a Warwick Castle kind of event.
https://en.wikipedia.org/wiki/Warwick_Castle#Corporate_ownership

Placing an additional tax burden on anything makes it harder to afford doing that thing

Additional tax or removing a tax relief others don't get is part of the discussion.

The life of a farmer sounds a lot like the life of any one with a small family business. Should all the artisan spoon makers and sourdough bakeries be exempt too?

I vote nationalise!

taxing something makes it less affordable

new tax

IHT is not new or additional – they have been exempt. This is a duty levied on personal wealth, and not a regular tax on operating profit for a farming business.

For the business this really is just another risk which can be managed and mitigated.

For the individual ... I believe in fair taxation and the concept that sometimes a tax pound spent on someones behalf can often return greater value for the individual than a pound in their pocket. Why wealthy farmers were ever exempt from IHT baffles me.

Your hypothetical narrative talks about businesses close to unviability in the round but it's probably more useful to look at who would actually have enough hoarded personal wealth through farming to be liable to meet the IHT threshold.

From data I've seen doing the rounds I'm assuming it's unlikely to be anyone without a significant buffer for their personal and business finances, even if assets need to be liquidated to meet the IHT.

So yeah, I stand by my point that if farming businesses are so close to the edge they can't weather the impacts of IHT, then they certainly could not navigate the financial shock from other risks and are therefore unviable. That is mismanaged wealth.

What about tax avoiders who are investing in the artisan spoon making business? Their children will get NOTHING despite their careful financial planning.