Environment Secretary Steve Reed’s claim that the new farmer’s tax will actually being good for has been slammed by a legal expert who said he has a “fundamental misunderstanding” of the challenges the industry faces.
Mr Reed was commenting on new rules governing inheritance tax (IHT) thresholds being introduced from next April, after which inherited agricultural assets worth more than £1m, which were previously exempt, will be liable to IHT at 20%, half the usual rate.
Asked to justify the rule changes during an appearance before Lords environment and climate change committee yesterday, he said: “If we can stop this upward pressure on land price inflation that stops farmers buying land and reduce the incentive for wealthy individuals from non-farming backgrounds to buy land to avoid their own tax liabilities, then that’s got to be and for food production.”
Mr Reed also insisted charging estates over £1m with a 20% tax bill from April 2026 would result in more, rather than less, land being used for farming.
He said: “The biggest source of land going out of agricultural production isn’t the changes that have just been made. It’s the fact that there’s too big an incentive for non-farmers, wealthy people, to come in and buy land as a means of reducing their liability.
“Last year, the majority of agricultural land that was sold went to non-farmers and the circumstances I just described would be a big driver of that. So the changes to inheritance tax actually reduce the incentive to wealthy individuals to do that. It may well end up that less land is taken out of agricultural production as a result.”
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Farmers take part in a go-slow protest in Dover, Kent, to show their unhappiness at the Labour gover (Image: PA)
Nevertheless, the plans have triggered furious protests across the UK, including in Dover yesterday – and Tom Gauterin, director at national law firm, Freeths, was unconvinced by Mr Reed’s arguments.
He said: “Mr Reed’s comments to the Lords’ Environment and Climate Change Committee suggest, concerningly, that the Government has still failed to understand the problem and has no intention of backing down. It also suggests that there is a fundamental misunderstanding of APR ( Agricultural Property Relief) itself – even when bought by wealthy investors, land does not qualify for relief if taken out of agricultural use.”
There was no problem with the Government’s plan to target investors buying up agricultural land as a tax shelter, Mr Gauterin stressed.
However, he added: “The proposed solution is a very blunt approach that spreads the net far more widely, with the likely result of causing genuine hardship to farmers working on even quite large farms.
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Environment Secretary Steve Reed (Image: Getty)
“Rather than imposing IHT on farms based purely on value (which fails to take account of the very low profit margins farms make even on farms with a large capital value, which stand no chance of covering an IHT bill), there are other options open to the Government which, so far, it has shown no willingness to explore.”
Possible alternative strategies including limiting the availability of APR for landlords, tightening the definition of ‘working farmer’, and using a so-called “clawback mechanism”, Mr Gauterin continued.
He said: “This third option seems the most suitable and has been suggested by several industry commentators over the years.
“The details would need scrutiny, but basically would provide an exemption from IHT for farms on death, to be clawed back if the farm (or part of it) was sold within a period of time – ten years, perhaps, with a taper down over time.
Farmers also protested in London earlier this month (Image: Getty)
“This would immediately prevent the absurdity of farmland being used as a tax shelter and sold shortly after the owner’s death. It also has the advantage of being a mechanism used elsewhere in tax law, so would be familiar to practitioners and easy to draft.
“It is concerning that the Government so far appears to be sticking to its guns despite numerous suggestions that might more effectively achieve the policy’s aims. It would be an encouraging sign if the Government agreed to a genuine consultation before ploughing on with an approach that is likely to be both unpopular and unsuccessful.”
Earlier this week Jeremy Moody, secretary of the Central Association of Agricultural Valuers (CAAV), told the 2,500 farmers a year would end paying the tax – many more than the Treasury’s prediction of 500.
His analysis contradicts Verify, the broadcaster’s fact-checking service, which has backed the Government.
A government spokesperson said: “Our commitment to farmers remains steadfast – we have committed £5 billion to the farming budget over two years, including more money than ever for sustainable food production.
“Our reform to Agricultural and Business Property Relief will impact around 500 estates a year. For these estates, inheritance tax will be at half the rate paid by others, with 10 years to pay the liability back interest free. This is a fair and balanced approach which fixes the public services we all rely on.”