Nick Hutton, a 46-year previous dairy farmer in Somerset, is anxious he will likely be lumbered with unaffordable dying duties after the UK authorities this week launched a shock cap on inheritance tax reduction for agricultural belongings.
Chancellor Rachel Reeves mentioned throughout her Price range on Wednesday that farmers with belongings price greater than £1mn must begin paying dying duties from April 2026, as a part of a broader crackdown on inheritance tax loopholes.
Hutton, of New Manor Farm close to Frome, mentioned he agreed with the intention behind the adjustments, and was infuriated by “metropolis folks” abusing the tax reliefs in his county, however that the chancellor had not thought by means of all the implications.
“There are millions of farmers who didn’t sleep final night time as a result of they’re worrying that their kids are going to be in a horrible state of affairs in the event that they pop their clogs,” Hutton mentioned.
Chancellor Rachel Reeves’ determination to cap inheritance tax relief on agricultural assets has led to a loud public outcry from farmers, prompting plans for protests within the capital as livid commerce teams rally to overturn the reforms.
The Nationwide Farmers Union and the Nation Land and Enterprise Affiliation have warned that the adjustments will herald the top of the household farming within the UK, power small rural companies to promote their belongings and undermine the nation’s meals safety. The NFU has set a date for a “mass foyer” on November 19 in central London.
Farmers and agricultural specialists that spoke to the FT argued, nevertheless, that whereas the adjustments would hit some farmers laborious, they might be offset with good succession planning. Rich households and absentee landlords shopping for farmland to dodge inheritance tax in the meantime ought to must pay their fair proportion, they mentioned.
Hutton’s father is within the strategy of handing down the farm to his two sons. But when he dies inside seven years, Hutton and his brother must pay inheritance tax at 20 per cent of the farm’s worth, save for the £1mn that falls underneath the reduction.
Whereas their dairy herd is valued at about £2mn, and the land and buildings at an extra £2mn, the farm earns simply £35,000 in income a 12 months, which Hutton splits together with his brother.
Rob Hitch, agricultural accountant at Dodd & Co, mentioned the reforms basically modified how farmers would wish to method their succession planning, however weren’t a dying knell for the sector. Most farmers, he mentioned, would have the ability to cross on their belongings to their kids throughout their lifetime with a purpose to cut back the dimensions of their property at dying, thereby reducing the tax invoice.
“The issue group who will likely be affected by this most are these over 75 who nonetheless maintain substantial farming belongings,” mentioned Hitch.
Farmers can reward agricultural belongings whereas they’re alive, but when they die inside seven years of the reward, or if the recipient sells the property earlier than the donor’s dying, inheritance tax is then due.
An answer to this, he mentioned, could be to permit farmers above a sure age, for instance 70, to nonetheless make presents for a brief interval whereas benefiting from the previous guidelines.
“As soon as the shock has subsided, many will work out that with planning, a household farm can minimise IHT,” mentioned Julia Aglionby, agricultural valuer and professor on the College of Cumbria.
Aglionby argued that this might be constructive for the following era, as farmers at the moment “held on to regulate into their 80s leaving their middle-aged kids engaged on lower than the minimal wage, unable to innovate”.
Ministers and a few tax specialists have argued that the outcry from farmers is excessive. On Friday, surroundings and meals minister Steve Reed defended the reforms, criticising “deceptive headlines” claiming that household farms pays the worth. “Solely the richest estates will likely be requested to pay,” he wrote in a column in The Telegraph.
Paul Johnson, director of the Institute for Fiscal Research, advised Sky Information that the complaints have been “massively overdone”. “This impacts a really small variety of farms annually. They’re nonetheless going to be higher handled than anybody else when it comes to inheritance tax,” he mentioned.
Agricultural property reduction (APR) and enterprise property reduction (BPR) have been designed to make sure the survival of household and farm companies after the proprietor’s dying. However in keeping with tax specialists, the insurance policies overwhelmingly profit the nation’s largest estates.
The IFS discovered that the reliefs are most closely utilized by the most important estates, with 90 per cent of enterprise belongings handed on as a part of estates price over £2mn. However the NFU has countered that the majority farmers have been asset wealthy due to excessive land values, however money poor, so the cap was nonetheless far too low to guard household companies.
Hutton, of New Manor Farm, mentioned that whereas the federal government’s intentions have been good, he didn’t consider that the reforms would shut loopholes such because the inserting of belongings into trusts to keep away from IHT, one thing “true farmers” weren’t ready to do, as many used their farms as collateral for loans.
Financier and environmentalist Ben Goldsmith, who’s rewilding components of his a 300-acre farm close to Bruton in Somerset, mentioned absentee landowners farming the land underneath contract simply to keep away from inheritance tax have been creating “miserable landscapes”.
Each Hutton and Goldsmith mentioned the follow of rich landowners outsourcing farming to massive agricultural or forestry contractors by means of “income à prendre” agreements was rife within the space.
The association permits a landowner to grant entry to a farmer to farm with out having to type a tenancy settlement. Hutton mentioned he had been approached 4 instances by landowners in search of such an association.
“The heritage reduction has been just a little bit abused,” mentioned Goldsmith, arguing that there ought to be a public good situation connected to it comparable to significant heritage safety, public entry or nature restoration. “If they’re going to benefit from that reduction, they need to must earn it.”
A latest evaluation by the Centre for the Evaluation of Taxation (CenTax) discovered that greater than two-thirds of APR went to round 200 UK estates a 12 months, with every claiming greater than £1mn in reduction on a mean property worth of £6mn.
“There’s a large distinction between me, who will get up at 4am and finishes at 9pm, seven days per week, incomes lower than 20k a 12 months, and any individual who has made their cash exterior farming, retired to the nation at 45, purchased a farm for £5mn, has two horses, 5 sheep and a set of accounts that say they a farmer,” mentioned Nick Hutton.
“We’re not the identical folks. The definition of a farmer is what I believe actually wants addressing.”
