Inheritance tax changes threaten family farms

The family of Andrew Smith has had a cattle farm on Bodmin Moor in Cornwall for over a century.

I am very concerned at impact of planned changes to Inheritance Tax for farmers which will have a disproportionate impact in Northern Ireland

I met the Secretary of State for NI today and urged UKG re-think plans which are causing real angst and worryhttps://t.co/gPNc1MW1fh

— Andrew Muir MLA (@AndrewMuirNI) November 4, 2024

Smith, 56, now runs the farm with his three sons, producing about 2,000 sheep and 30 to 40 cows each year, yet makes “no profit.” He sees Chancellor Rachel Reeves’s changes to inheritance tax rules as a grave betrayal of British farmers. Last Wednesday, Reeves announced that, from April 2026, farms and other business property, which had been passed on to heirs tax-free, will fall within inheritance tax. Inheritors will have to pay 20% of their value above £1m, half the headline inheritance tax rate of 40%. “The boys have been in the business with me since they left school,” Smith says.

You Reap What You Sow: my SKETCH of Today in a government that completely understands farmers' concerns. https://t.co/kmFgRvU0BF

— Robert Hutton (@RobDotHutton) November 4, 2024

“They have been bred to look after stock on the moors, which is a very difficult terrain to earn a living on.

Meanwhile, in other news…..
I've not witnessed despair like this in the countryside since the foot and mouth epidemic, writes ROBERT HARDMAN
via https://t.co/9rJssgGcog https://t.co/bYu9FTSoLV

— Robert Hardman (@hardmanr) November 4, 2024

They were expecting to take it over from me, but this is the final nail in the coffin for family farms.”

Good piece in @Telegraph on the Budget's crushing blow to family businesses, quoting @MalvernianKarl of @CPSThinkTank https://t.co/k3Hj5IWhGl

— Robert Colvile (@rcolvile) November 2, 2024

Smith believes that the fact that UK family farming today is by default asset-rich but cash-poor has been entirely ignored by the chancellor’s new rules. If my farm is worth £5m, my sons won’t be able to pay £800,000 in inheritance tax. They’ll just have to sell half their land when I die. Then the farm will be unviable.” Jonathan Bell’s family has been involved with farming going back at least to his great-grandfather. In 2018, he began running the 250-acre farm in partnership with his wife and parents. “Rachel Reeves has destroyed our farm business and also our cold-pressed rapeseed oil business,” says Bell, 55. Bell estimates that the family could face a £400,000 inheritance tax bill.

Inheritance tax burdens family farms

On a business making £30,000 profit, there is no way I could service a debt of that magnitude,” he says. “We would have to sell part of the farm, making us even more uneconomical,” raising the “very sad” possibility of being forced to give up farming entirely. Andrew Brown, from the East Midlands, owns about 100 acres of land, but he is mainly a tenant farmer producing wheat. He feels more ambivalent about Reeves’s new rules. “I think this is ultimately a good idea because some of the very, very rich landowners aren’t farmers; they’re people who just bought land to take advantage of the IHT rules. So, if this stops very wealthy people from buying farmland to avoid taxes, then all the better, as those people could afford to pay the tax anyway,” he says. “I don’t disagree with the principle, but there were better ways of doing it. The threshold is too low, which will affect a lot of people, and it should be gradual, so 5%, say, for up to [a farm value of] £5m, then 10% until £10m, and so on, to a maximum inheritance tax rate of 50% for farms worth over £50m. That would have been fairer.” When Gerallt Lloyd was growing up on his parents’ dairy, sheep, and beef farm near Aberystwyth, he remembers pouring out fresh cups of cow’s milk to drink. Decades later, Lloyd, now 47, still works for his 77-year-old father on the same land in west Wales, and hoped one day to pass it on to his children, aged 17 and 14. He owns 120 acres, but in addition rents 150, which he says “helps to make the farm viable.” Lloyd fears the chancellor’s decision to change agricultural property relief will mean his children will be deprived of that opportunity. “It feels awful,” says Lloyd, who estimates being hit with a tax bill of about £100,000 when he takes over from his father. “This could be the death knell for many family farms.” The National Farmers’ Union has labelled the plans “disastrous” for the industry. The government said the change will only affect about 2,000 estates a year.