Don't Vote Labour Again (Part 15)

Starmer versus Farmers (Pt I)

There was much trepidation about Reeves' budget on October 30th. Something thought to be lined up for a tax raid was inheritances, along with our incomes and capital gains. Perhaps with an eye on the plunging opinion polls, Labour opted to shelve such impositions on the average person, deciding instead to hit employers with a National Insurance rise. That of course would lead to slowing wages and fewer job opportunities affecting the average person - but the hope was nobody would notice.

Inheritance tax (IHT) is already high for the average person. On inherited money above £325,000, people have to pay 40% to the government, who are sure to spend it on something useless. To clarify, you pay 40% on the excess of £325,000. In other words, £325,000 is your tax allowance or tax relief. Say you inherit £500,000, that is £175,000 over the threshold, and you pay 40% of that - which amounts to £70,000. This is 14% of the total inheritance. You have to pay it all at once, within six months.

With (primary residence) family homes, the 40% applies to homes worth over £175,000 - which these days is a very low threshold. If you inherit a home worth £300,000, that is £125,000 excess, resulting in £50,000 in tax. That comes to 17% of the property's total value. Again it must be paid all at once within six months. If you haven't got £50,000, you will have to sell the property in order to raise that money. Thus the home leaves the family, and some heartless developer, investment firm or wealthy migrant buys it up - if it isn't knocked down for multiple occupancy flats. IHT is a tax on death and the family, and if I had my way it would be abolished or drastically lowered. At least it didn't rise any higher in this budget, but give them time...

People who did take an extra hit on IHT, however, were business owners and farmers. The current, quite complicated regime does allow elements of a business or farm to be passed on without incurring IHT. That would all change in April 2026. Essentially, a business or farm worth more than £1 million would be liable for 20% inheritance tax when passed on by the owner. That is not a high threshold for the total assets of a business or farm. The inheritors would have ten years in which to pay the money off.

On December 4th this was tested in Parliament, where the Tories arranged a debate and vote on the new proposal. Alas, the Labour supermajority won the day, defeating the opposition by 339 votes to 181.

If a farm owned by two people were to be left to their child or grandchild (or 'direct descendants'), the threshold would be £3 million. If a farm were owned by one person and left to a direct descendant, the threshold would be £1.5 million. In both cases there would be a slightly lower threshold if the inheritor was not a direct descendant.

Let's take a family farm left by a mother and father to their son. It's worth £3.5 million. That is £500,000 over the threshold, so would result in £100,000 in tax - which amounts to about 7% of the farm's total worth. Spread out evenly over ten years that would be £10,000 a year.

The average profit of a farm is thought to be £45,000 (2022/3). That includes all kinds of farm, and the figure varies from type to type. The figure accounts for all the typical overheads, including income tax, corporation tax and National Insurance payments for employees (farms do not pay local business rates though). It also includes employee wages, rental fees on land, and buying tools, fuel and material. All these price factors are liable to fluctuations, of course, and help make the margins in farming increasingly tight.

Assuming the son's farm were to make this amount, 22% of his annual profits would be going to the government in IHT.

If the farm were a registered company (not a sole trader) and profits were higher than £50,000 a year, there would also be a corporation tax of 19%. Let's say the farm were to make £51,000 a year pre-tax. The income tax would be £20,400 (the threshold for the 40% higher rate is £50,271). The corporation tax would be £9,690. Adding the £10,000 in IHT, the son would be paying a whopping £40,090 in tax per year, or 79% of his total profits.

As I mentioned, there are also price factors making the margins tight; volatile prices for produce; tough deals from supermarkets; wages and labour costs; the rising cost of tools, fuel and chemicals; competition from imports and big agriculture; and environmental obligations. Rent might be being paid on all or some of the land, which could also increase over time. Then we have the emergencies that can befall farmers - a drought, an excessively cold winter or outbreaks of disease.

That £10,000 a year, then, could be crucial in the business surviving or failing. The son might give it a go, struggle for a while, then sell up. Or indeed they could be put off entirely and sell before they've even made the attempt. On the other hand they might weather the storm, with a bit of luck and some very hard work - but this new arrangement would make it much more difficult.

There is some dispute about how many farms the new tax regime would affect. Rachel Reeves has underplayed it, saying the number would only be 520 a year. Supposedly this is based on HMRC data. There are currently 209,000 farms in the UK, according to the Department for Environment, Food and Rural Affairs (DEFRA).

Per year is a strange figure to use, given that the new regime could go on indefinitely. In 25 years it would be 13,000 farms, of which many will simply be sold off and lost to the families who were running them. Steve Reed, the Minister for DEFRA, had a different figure, claiming in Parliament: "three quarters of farmers will pay nothing as a result of the changes". This isn't using an annual figure, and he says 'farmers', not 'farms'; but if we take it to mean a quarter of farms it would amount to 52,250 - quite a bit more than Reeves' guestimate.

The Country Land and Business Association, meanwhile, say it could be 70,000. The National Union of Farmers suggest 66% of farms could be affected, given that farms worth under £1 million only make up 34% of them. This would be 137,940 farms. These estimates are supported by DEFRA's own figures on the value of farms in England (not the rest of the UK). A survey was "designed to be representative of about half of farms" (not sure why this would be an aim). It looked at a sample of 1,350 farms in 2022/3 and concluded 17% were worth under £1.5 million and 49% were worth more than that. Together this makes 66%. The statistics could be more accurate, but they still suggest a worrying possibility, and put the (inconsistent) claims of two high ranking government figures into question.

Whatever the truth of the numbers, should any farmer have to face this imposition? At this time of international crisis and soaring population, food security is more important than it ever was. Farmers are currently exempt from inheritance tax and business rates in order to give them the best chance, reflecting how vital their work is. This government has decided to pull up the ladder and remove the IHT advantage from tens of thousands of people. The question is why. And here's a clue - it's not just penny pinching.

Penny-pinching is part of it. Labour want to squeeze every last drop of government revenue, while conversely continuing to throw money at the climate stuff, overseas aid, Ukraine, asylum seekers, and all the rest of it. That is why they cut the winter fuel payments for the elderly, among other things.

But the main reason is the modern left and the system captured by it do not like farmers. They do not like the consumer demands that farmers provide for - meat, eggs, dairy products, potatoes for crisps and barley for beer. They do not like the way farmers go about producing it - pesticides, diesel-guzzling tractors, shooting things that get in the way. Even livestock breathing and defecating is bad for the environment, apparently, because it increases carbon dioxide and methane. In their ecological zeal these maniacs do not prioritise food, wealth, energy supply, societal stability or tradition. The farmers are just another group that is collateral in their obsessive mission.

More tomorrow

Written by Ed Pond 4/12/24, all rights reserved