Business Property Relief and Agricultural Property Relief
(1 month ago)
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Harriet Cross (Gordon and Buchan) (Con)
I beg to move,
That this House has considered Business Property Relief and Agricultural Property Relief.
I rise today to address a pressing issue affecting not only my constituents in Gordon and Buchan but rural communities and family-run businesses across the entirety of the United Kingdom. As we approach the autumn Budget, there is growing anxiety, yet to be put to bed, among farmers and family business owners about the potential changes to agricultural and business property reliefs. APR and BPR play a crucial role in securing the longevity of farming and family businesses. Without inheritance tax reliefs, the value of an individual’s business assets will be chargeable at a full 40%. The rate of inheritance tax in the UK kicks in at a relatively low value in relation to the value of farming assets, even for a small farm, particularly when compared with that of other countries. There is speculation in the media, coupled with Government silence, on the future of these reliefs, which is causing profound problems.
In a meeting with the Country Land and Business Association just yesterday, I heard how some of their members are already taking rash and rushed decisions because of this matter, which will impact their businesses, tax position and operations for years to come. Its members—our constituents—fear the worst in terms of changes to APR and BPR in the Budget and the profound impact that may have on their businesses, which, in many cases, provide employment for their families and wider communities, and have done so for generations.
APR and BPR are not, as some would have us believe, just tax loopholes for the wealthy. Viewing those reliefs as fair game in a Budget shows a complete lack of understanding of their importance and function. APR and BPR are lifelines for hard-working family farms and entrepreneurs, who form the backbone of our rural communities and local economies the length of the country. These are same businesses that we MPs are always too delighted to be seen to visit and champion as pillars of our communities and for their hard-working, entrepreneurial spirit; it is now time that we put those words into actions. Many of these businesses would not survive a succession event without APR or BPR—it is that simple. There is a reason why the reliefs have been in place for almost 50 years, which is that they work and are needed. Without them, farming and family businesses would change, and the UK’s rural business landscape would be unrecognisable.
Agricultural businesses are vital for not only economic activity but food production and security, land stewardship and environmental management. As farmers face ever-tighter margins from increased environmental obligations, spiking input costs and global market pressures, there is already considerable strain on farming profitability. It is important to understand that although farms have high asset values, they are often cash poor. In 2022-23, across all types of farms, 17% were failing to make a profit and 59% were taking home less than £50,000. Even where a profit is made, it is usually directly reinvested back into the farm—the business—in order to increase efficiency, develop or adapt. Cash does not simply sit idly; it is usually invested into assets needed to grow the farm and allow it to function, be it via land, buildings or kit.
APR is also vital for ensuring that farms can be passed to the next generation without a crippling inheritance tax bill. The continuity of family farms is necessary for the maintenance of our cultural heritage and expertise and, crucially, generational stewardship of our countryside and responsibility for food production. Without APR, many families would be forced to sell their land or buildings or even split up the farm in order to pay inheritance tax bills, which, even for the most modest of farms, could be hundreds of thousands of pounds, if not in the millions. That would mean selling the very assets and losing the scale needed to operate and produce food, fundamentally undermining the viability of those businesses.
It is important to appreciate that farms do not operate in isolation; they typically engage with multiple businesses in close proximity to their holdings. In my recent meeting with the National Farmers Union Scotland, I was told about a farm in north-east Scotland that engages with no fewer than 92 separate businesses within a radius of just a few miles; those businesses all benefit from that one farm. The closure of a single farm will have a ripple effect throughout any local economy.
The average age of a farmer in the UK is 59, and 35% of farmers are aged over 65. We all know that it is common to see farmers still managing their holdings well into their seventh or eighth decades, but that means that, on family farms, a succession event—planned or otherwise—can hit very suddenly. Without the reliefs, we risk losing a generation of farmers, threatening the future of British agriculture. Many family businesses will simply cease to exist if they are removed. The impact will extend not just to landowners, but far beyond, to tenancies and the wider rural economy.
In a recent poll by the CLA of over 500 landowners and farmers, 86% said they were likely to have to sell some or all of their land upon a death if inheritance tax reliefs were scrapped, and 90% said that the UK’s food security would be damaged in the long run. I find that really hard to disagree with. The potential loss of productive agricultural land and farmland has serious implications for our national food security, and I remind the Minister of the line in the Labour manifesto, that
“food security is national security.”
Let us also consider the alternative: if large areas of land were sold to cover an IHT bill, who would be likely to buy that land? Would it be another farmer, who would also have to manage their own capital in light of their own family’s IHT bill down the line, or a large corporate company, where boardrooms and bottom lines dictate the approach to environmental management, room for nature and food production? I do not think that that is the ownership and business structure of rural Britain that this Government, or indeed any of us, are striving for.
We must also consider the impact on tenants as well as landowning farmers. Any changes to APR that make it less appealing for a tenancy to be created will have a detrimental impact on tenants, the tenancy sector and the next generation of farmers.
Markus Campbell-Savours (Penrith and Solway) (Lab)
I might have this wrong, but I understand that the Tenant Farmers Association has suggested that there could be scope for reforming these taxes in a way that is of benefit to long-term tenancies. What is the hon. Member’s view on whether such reforms would be worthwhile?
Harriet Cross
I would obviously I have to see what the TFA suggested, but I think that we need to look at the agricultural sector as a whole. If land is being taken out of farming for any purpose, it is not going to be available for tenants, so if landowners are feeling compelled to sell their land because they have to cover an IHT bill, it does not matter what happens with reforms down the line; that land will not be available for tenants to access. I fully support the tenanted sector—it is a vital part of our farming sector—but, on its own, it will not be enough to keep land in production.
BPR is important for every family business the length and breadth of the country, and therefore in all of our constituencies. Family-owned businesses are the beating heart of the British economy. Across the UK, there are approximately 5.3 million family businesses, employing over 14 million people and contributing £225 billion per annum to the Treasury. BPR is especially vital for small family businesses—including many in my constituency of Gordon and Buchan—which form the backbone of our local economies, providing much needed local employment, stability and resilience in the face of economic and environmental challenges.
Businesses that rely on BPR to survive a succession event are often significant local employers, and their failure would have a knock-on effect on local services and on business rates, which are vital for local authorities. Other models of business ownership, such as plcs and those backed by private equity, do not face a tax charge on the change of ownership, so BPR is a vital mechanism to ensure that family businesses—85,000 of which are passed to the next generation each year—are at least on a level playing field.
About 77% of family small and medium-sized enterprises are first-generation businesses. Without BPR, these family firms would lose the opportunity to grow and transition into successful next-generation businesses. If, following a succession event, businesses effectively have to take a 40% hit on their finances or asset base to cover an IHT bill, what chance is there for them to secure longevity and flourish in the future? As we approach the Budget, I hope the Minister and his Government will take on board that APR and BPR are vital to the long-term planning and investment of rural areas and family businesses. It is not an overstatement to say that the future of rural communities and our food security depend on it.
In particular, the Government should focus on four things: providing clarity and reassurance on their intentions regarding APR and BPR; committing to maintaining those reliefs in their current form for at least the duration of this Parliament; commissioning an independent review on the wider economic and social impact of those reliefs beyond just the direct cost to the Treasury; and engaging meaningfully with rural communities, farmers and family business owners before pursuing any future changes.
APR and BPR are not mere tax reliefs; they are the foundation of a thriving, sustainable and entrepreneurial United Kingdom. They support our farmers and family businesses, pillars of our communities that have been there for generations. They ensure that businesses can continue to operate following a succession event and allow for the long-term planning necessary for farms and family businesses to develop and thrive. I look forward to hearing Members’ contributions.
Joe Morris (Hexham) (Lab)
I congratulate the hon. Member for Gordon and Buchan (Harriet Cross) on securing this debate. We have already spoken briefly in an all-party parliamentary group meeting about the similarities between our constituencies. She and I both know the importance of a thriving agricultural sector, the jobs it provides, and the almost undefinable contribution it makes to the character of the constituency and to a community.
I am concerned because farmers in my constituency have told me that they have been dealing with the chaos of the economy for the last 14 years. They have been dealing with crashing consumer confidence and an international trading situation in this country that simply is not conducive to the long-term success of the agricultural sector. For example, the Australia and New Zealand trade deal was a betrayal of the sheep farmers in my constituency in particular and has threatened their long-term business prospects. I hope that the Minister not only responds to the points made in this debate but talks about how we can make sure that the economy is stable, secure and on firm foundations, and that we never again see our farmers sold down the river as they once were.
John Glen (Salisbury) (Con)
Would the hon. Gentleman acknowledge that the Canadian deal has not been signed in the last 18 months in order to take account of the agricultural sector’s concerns in particular? The pressing, immediate concern for which the Minister must provide a resolution today is how this Government are disposed towards agricultural property relief and business property relief. That is their concern now. The hon. Gentleman is making a political point—whatever happened previously, we have to focus on his Government’s responsibility in the coming two weeks.
Dr Rupa Huq (in the Chair)
I have just been reminded by the Clerk that it is very unusual for a shadow Cabinet member to speak in a Westminster Hall debate as a Back Bencher. I will allow Joe Morris to respond, but apparently that is not the done thing.
Dr Rupa Huq (in the Chair)
It is not the Opposition Chief Whip’s decision; it lies with the Chairman of Ways and Means. Our rule book says that it is highly unusual. I will allow Joe Morris to respond, but hopefully there will not be a back and forth between the shadow Cabinet and Back Benchers.
Joe Morris
I thank the right hon. Gentleman for his highly unusual intervention. I will make a brief university point and say that it is highly unusual to have a Mansfield College MP intervene on a Mansfield College MP; it is probably the first time that has happened in this Parliament.
Joe Morris
I take the right hon. Gentleman’s point. I am glad that the last Government learned some of the lessons of the Australia trade deal and implemented them. It is important that we get an answer on APR and BPR. I am making a slightly political point, and I hope the right hon. Gentleman will humour me for it, but it is important that we maintain that international trade is an ongoing piece and the agricultural sector does not exist in isolation. None of these reliefs exist in isolation. Farming, more than anything, is an industry with concerns that sit between the Treasury, the Department for Environment, Food and Rural Affairs and the Department for Business and Trade. More than almost any other industry, it is reliant on good cross-party and cross-departmental working, and we need to ensure that the Government do that. I hope that we do not consider these things just in isolation but overall and together, and we must ensure that the Government are working towards securing them.
One of the main concerns that I picked up from my constituency is the inability of consumers to distinguish between British and foreign produce when it is badged up the wrong way. I hope the Treasury will listen to representations on how we can combat that kind of false advertising when foreign produce is repackaged as UK produce. How we keep the family farm going, and how we ensure that small farms are able to continue to produce in the Tyne valley, is deeply concerning to me. I have spoken to a lot of local farmers about land loss and about large corporations buying up prime agricultural land and using it to—I think it is fair to say—greenwash. That is genuinely a national issue that requires cross-party cohesion and cross-party solutions. My own hackneyed political point scoring is not going to help in that, but in the long term and in this Parliament, I would always welcome working to address that. However, I urge the Minister to remember that farms are businesses and they need long-term consumer confidence. They need an overall business climate that rewards investment and entrepreneurialism, but not one that is not built on sand. They need one that is built on secure, stable foundations and that is open to serious cross-party working.
When we look at how we get the rural economy growing, it is really important that both land-owning farms and tenant farms in particular can continue to employ people and that there is money going out of those farms into the local economy. I have spoken to my constituents: they have had to take certain crops out of production to grow those that need less manpower. They would have employed people to work those fields or work that livestock, but they have been forced to change by often badly designed initiatives from DEFRA, and we need to work cross-party to ensure that those initiatives are better designed in future. They have been forced into those measures that, over the course of many years, slowly bring their workforce down and lead to less money coming into the local economy. In his response, I hope the Minister can ensure that the Treasury hears the pleas of rural communities. This issue is genuinely a concern across parties, and my constituents are very concerned about the ongoing removal of prime agricultural land from food production.
Dr Rupa Huq (in the Chair)
I remind Members to bob if they wish to make a speech. We will then calculate whether we need a time limit.
Mr Alistair Carmichael (Orkney and Shetland) (LD)
It is a pleasure to serve with you in the Chair, Dr Huq, and I congratulate the hon. Member for Gordon and Buchan (Harriet Cross) on securing a very timely debate. She has provided us with what is definitely my favourite euphemism, the “succession event”, and I think we know what that means in most cases.
This is a timely debate because we have had a lot of speculation in the media in recent weeks about the possibility of changes coming in the Budget very soon. There is very little that is certain in politics these days, but I am as near certain as anybody can be that, when the Minister comes to reply, he will say that he is not going to tell us anything about the Budget. I understand the reasons for that, which are essentially sound, long-standing and respected by all, but it illustrates the inadequacy of this as a way of effecting meaningful change. Without the ability to have a proper debate involving the Treasury, change will inevitably come in a haphazard and chaotic way, and it will bring with it many unintended consequences that will have an effect on not just farmers but the wider rural community. I should have said right at the start that I have my own interests in agriculture, which are in the Register of Members’ Financial Interests, and I remind the House of those.
There may be a case for reform, but this really is not the way to go about it. The hon. Member for Gordon and Buchan was right to say that farming is a capital-rich and revenue-poor industry. Of course, any changes in farming will have consequences that spread beyond agricultural businesses. What affects farmers will affect vets, agricultural merchants, local shops and post offices in some of the most economically fragile communities to be found anywhere in the country. My concern has long been—it is not exclusive to this Government—that the Treasury does not quite understand the way the rural economy works. It is a cliché, but true, to say that farming underpins just about everything in rural communities and the rural economy, whether environmentally—through the way in which land is managed, which has consequences for nature—or financially.
The Tenant Farmers Association provided a briefing for this debate, which said that it is already seeing consequences among its members:
“We are already seeing, first hand, concerns about how Inheritance Tax charges change the way that traditional estates have thought about the management of their agricultural land, and that is before there is any change to the Inheritance Tax regime. Rural estates with significant residential and mineral interests will want to ensure that they have sufficient business activity elsewhere on their estates to be able to qualify for BPR from Inheritance Tax across the whole of their estates. If APR was abolished this will make things hugely much more difficult for farm tenants.”
That important point gets right to the heart of the matter. That is why I am pleased that the hon. Lady, in framing this debate, covered APR and BPR, which work in an interlinked way. It also shows the responsibility we in politics have when we set hares running.
North of the border, for the last few years we have had an active and often welcome debate about land reform, but one of the consequences of that debate is that many agricultural land owners, instead of moving out and putting in tenants, have moved into grass lets. A lot of the larger landowners’ estates, in particular, have replaced the secure agricultural tenancies for which they had been known for generations with a much less secure system of tenure.
As the TFA says, there might be a case for reform. It suggests ways to reward longer tenancies of 10-plus years and more secure tenancies. We have to have that debate, but we cannot effect that in a meaningful way that looks at agricultural spending in the round once the decision has been announced in a Budget. There are many other influences at play. For example, in recent years we have had the reform of agricultural support payments in England and Wales, and that is now coming through in Scotland.
For decades, farmers have been told that they have to diversify—diversify, diversify, diversify—so they have renovated farm cottages and turned them into furnished holiday lets, and now they are being told that they are responsible for the housing crisis in the country and are being hit with furnished holiday let reform, which this Government appear to have inherited from the previous one.
Inheritance tax can be avoided by intra vires transfers, but the way they work can often be arbitrary. They can also have some difficult personal consequences when it comes to the transfer from one generation to the other, as the family interaction can be difficult.
I congratulate the hon. Member for Gordon and Buchan. I hope that when the Chancellor delivers the Budget next week, if this issue is under the Treasury’s active consideration, we will see the Government’s direction of travel and the overall picture that they want to achieve, rather than just one quick hit, because that could have serious consequences for family farms and rural communities across the country.
Aphra Brandreth (Chester South and Eddisbury) (Con)
It is a pleasure to serve under your chairmanship, Dr Huq. I am grateful to my hon. Friend the Member for Gordon and Buchan (Harriet Cross) for securing this debate on agricultural property relief and business property relief. Like her, I represent a constituency with a large rural community of many farms and agricultural businesses, so I am acutely aware of just how important the relief is for the long-term viability of farming and the wider implications for UK food security.
There is already a recruitment crisis in the sector, which is heavily reliant on families to work in farming into the future. While I would, of course, encourage young people to look into agricultural and land-based courses such as the ones offered at the excellent Reaseheath College in my constituency, it is fair to say that farming is often in the blood, with the skills and knowledge passed down from generation to generation. If the physical means to farm, the land and the property, are not passed down to the next generation, then we risk losing the people, knowledge and skills that we desperately need to keep the sector viable.
I have spoken to farmers, who are clear that changes to agricultural property relief would mean that land would have to be sold to cover the cost of subsequent tax bills. I know that that is the case across the country. According to a large CLA poll, 86% of farmers said that all or part of their land would need to be sold when they passed away, if agricultural property relief was removed. Farmers have already been through a challenging time. Rising costs for energy and fertiliser, inflation, and adverse weather are just some of the issues that farmers have faced in recent years. The Government need to stand by farmers and support them, not restrict and punish them as the removal of APR would do.
Across the House, we rightly say that food security is national security. Farmers need land to produce food. If the Government remove protections that are in place to exempt farm land from inheritance tax, it will be yet another step to putting our food security at greater risk. This is a very real problem that is pertinent to all of us, whether we are farmers or not, because all of us rely on food that is grown to feed our nation. Many farmers across Chester South and Eddisbury provide jobs directly and indirectly—for instance, through food production or hospitality—that rely on local produce. Farmers are also essential for land management and maintaining our environment.
This policy threatens the future of the countryside. I remind the Minister that he stood on a manifesto that committed to not raising taxes on working people. I would respectfully suggest that any change in the current rules and rates of agricultural property relief would be contradictory to that promise. Farmers are working people. They work incredibly hard, often without the recognition they deserve, and they must be supported, not penalised.
Jim Shannon (Strangford) (DUP)
It is a pleasure, as always, Dr Huq, to serve under your chairship. It has probably been more than once this week but, none the less, it is lovely to see you in your place. I thank the hon. Member for Gordon and Buchan (Harriet Cross) for setting the scene so well and giving us all an opportunity to make a contribution on an important issue. It is an honour to speak on a subject that is not just a matter of fiscal policy, but is of vital importance to the very backbone of the United Kingdom. I declare an interest as a farmer, landowner and member of the Ulster Farmers Union for some 40 years. I joined the Ulster Farmers Union not because it was in Northern Ireland, but because the insurance premiums were very cheap. They are maybe not quite as cheap now, but then no insurance is as cheap now as it is used to be, and that is a fact.
I can attest to the importance of agricultural property relief in ensuring the sustainability and longevity of farming enterprises across our great nation. In my constituency of Strangford, farming is not just an industry, but much more—it is a way of life. It is about generations of families working the land, providing food, maintaining the landscape and contributing to the rural economy. More than that, it is about stewardship, which the hon. Member for Gordon and Buchan referred to in her introduction. It is really important that we focus on that. Farmers are custodians of the countryside, caring for the environment while ensuring food production to feed the nation. That means everyone; not just the farmers, but everyone who lives in this great nation. Agricultural property relief plays a critical role in maintaining that balance, allowing farming families to pass on their land and business without crippling tax burdens.
Agricultural property relief is one of the key supports for farming families across the United Kingdom, and in Strangford it is essential. In Northern Ireland, agriculture is responsible for some £501 million in income, as of 2021—a substantial 8.3% increase from 2020. It is no exaggeration to say that agriculture is at the heart of our economy, and everyone has said it. Agriculture is critical to everyone. Not a person who has spoken so far has not said that about our rural community.
My constituency of Strangford is home to a vibrant agrifood sector that employs thousands of people through major employers such as Willowbrook Foods, Lakeland Dairies and Mash Direct. Those companies are household names. They are family businesses that started as farms and then diversified—something that the right hon. Member for Orkney and Shetland (Mr Carmichael) referred to. They have ensured the sustainability of our rural community. Without APR, those family-run enterprises could be forced to sell land and assets just to meet inheritance tax liabilities, potentially dismantling businesses that have been built up over generations. This issue is critical to the future of my constituency’s farming community, and to those businesses.
Agriculture is not just a business; it is the fabric of rural life. We often talk about food security, environmental stewardship and rural economies, and yet without the right fiscal support, those pillars of our country are put at risk. That is why this debate is so important. APR helps farmers to plan for the future, ensuring that the next generation can take over the family farm without being forced into financial hardship. It allows them to focus on what they do best: producing high-quality food, maintaining biodiversity and contributing significantly to local economies.
We have a rich agricultural tradition. Our dairy farmers, sheep farmers, pig farmers and vegetable growers are among the best in the world and take immense pride in their work. Lakeland Dairies, which employs more than 250 people in my constituency, and Mash Direct, which employs more than 230, have been the cornerstones of our agrifood economy.
Let us not forget the Comber early, a potato with protected geographical indication status, which means it is recognised across Europe for its unique quality. It is grown right there in the fields of Strangford. Those enterprises are not just businesses; they are a way of life. It is about not just tradition, but innovation. Innovation is part of what farmers do. They are not just the boys who plough the fields and scatter the seed—that is almost like the hymn “We plough the fields and scatter”.
Let us take Mash Direct, for example. A family-run business that began in a kitchen 20 years ago now supplies some of the largest retailers in the United Kingdom, including Asda and Spar. The business is forward-thinking. It has installed solar panels and invested in sustainable practices, all while providing hearty, healthy food at affordable prices. Lakeland Dairies, meanwhile, exports its milk products across the world and contributes to the economy. These are family businesses that started off in a very small way and have grown and created jobs. They are success stories, and we must ensure that the tax system supports their continued growth and does not hamper them.
This is why I am calling on the Government to ensure that agricultural property relief remains intact and that it is not reduced or removed as part of any future tax policy. We must give farmers the confidence to invest in their businesses, to innovate and to continue producing high quality food for our nation. The very last thing we need is for farms to be sold off piecemeal because families cannot afford the tax burden. Let us be clear. APR is not a loophole for the wealthy; it is a lifeline for farming families who are working hard day in and day out to maintain their land and their livelihoods.
In Strangford, where agriculture is not just a part of our economy but a part of our identity—it is who we are—support is vital. As we look to the future of UK farming post Brexit, with new trade deals, changing subsidy regimes and heightened environmental targets, we must ensure that the fiscal framework surrounding agriculture is robust and supportive. APR is a crucial part of that framework, allowing farmers to pass on their businesses, invest in new technologies and ensure that rural communities remain vibrant and sustainable.
Farmers in Strangford and across the United Kingdom are already taking steps to reduce emissions, embrace low-emission technology and promote biodiversity. However, those efforts cannot come at the cost of financial viability. Many of the improvements needed to reduce emissions, such as upgrading farm infrastructure, require significant investment, as the hon. Member for Gordon and Buchan said. She set the scene very clearly. The money that is made must go back into the farms so that they can move forward.
APR helps to ensure that farmers have the financial security to make those investments. Without it, we risk failing not only our farming communities but our environmental goals. I say this to the Minister kindly—he knows that I do not criticise or give people a hard time, but I do make a point. The Secretary of State for the Environment has made it clear that Labour is committed to achieving environmental goals. The farmers whom I and others here represent are also committed to achieving those goals, but that can only happen if the money comes through for that purpose.
I want to mention the need for better protection of farmland from schemes such as solar farms and pylons, which can remove valuable agricultural land from production. While we must embrace renewable energy, we must also ensure that food production remains central to our land-use framework. There has to be a balance, as Members of both the previous and the current Government will understand. We need to strike the right balance between energy production and food security. Farmers should not be forced to choose between their livelihoods and environmental progress. Both things can, and must, go hand in hand.
I have spoken fairly quickly, and I think I have got more words in than anyone has ever done. Farming is at the heart of our nation, and agricultural property relief is at the heart of farming. Without APR, many of our farming families—those in Strangford and across this great nation—would face insurmountable challenges. The loss of that vital relief would be a blow not just to rural communities, but to our food security, economy and environment. Each of those is critical, so let us continue to back our farmers, protect our rural communities and safeguard our food security by maintaining agricultural property relief. I urge the Government to make that commitment and recognise that the future of farming in the United Kingdom of Great Britian and Northern Ireland depends on it.
Patrick Spencer (Central Suffolk and North Ipswich) (Con)
It is a pleasure to serve under your chairmanship, Dr Huq. I join in the tributes to my hon. Friend the Member for Gordon and Buchan (Harriet Cross) for securing this important debate. Like many Members, I am motivated to engage in it because I represent a rural constituency that is made up of many small and large farm holdings.
Without making this sound like my maiden speech, Suffolk is a beautiful rural constituency with a stunning landscape. It is known for its contribution to our food system, and it is home to many market towns where family-owned butchers, bakers and grocers source their produce from local farms. Even breweries do so. Adnams Southwold is in the next-door constituency, but it sources all the ingredients for its famous beers and other products from farms in the local area. One in seven jobs in Suffolk have some relationship to the food production industry. One only has to go to the Suffolk Show to see the importance of farms, farming and agriculture to our local economy. As a result, we have to take seriously the livelihood and financial sustainability of our farms.
It is worth remembering that farms are, as many Members have said, small businesses with tight margins and high capital costs. One way we could greatly threaten the long-term financial sustainability of farms, which are so integral to our economy and community, is to threaten the owners with a tax if they pass the family farm down to the next generation.
Let me explain why that is a bad idea. First, as with the taxation of many forms of capital, liquidity is being demanded from a resource that is fundamentally illiquid. As we have heard, the Government will fundamentally force many farms to sell off parcels of land, and when farm owners realise that it is hard to sell off small parcels of land, they will be forced to sell their whole holding. Don’t believe me? Eighty-six per cent. of respondents to a poll of farmers conducted by the Country Land and Business Association said that they would have to sell some or all of their land if they were faced with a new IHT obligation.
Secondly, those who can shoulder the cost of a new tax on their farm and business will simply have to reallocate a lot of their capital away from more productive sources of investment, such as cattle, machinery and labour. That has grossly negative economic and social consequences. My next-door neighbour is a relatively well-heeled farmer who also uses his land to provide a wedding venue and rental properties—that is something we have heard about. If we place farmers under more financial stress, they will simply have to close down those businesses. Let us not forget that many of those businesses provide really important jobs and incomes and, fundamentally, pay tax in our economy. We are taxing one half of the equation only to take away from the other.
Thirdly, the proposal will yield an irrelevant amount of money in the long run. We have all read the report from the Institute for Fiscal Studies that says that agricultural relief costs the Exchequer £400 million a year. To put it bluntly, I know that many people in the Treasury and Labour Members see landowners as rich rent seekers who invest in property to avoid IHT. But let us look at the contribution that people such as James Dyson have made to our food production industry by incorporating technology and environmental standards into the sector, or at the incredible impact of the Grosvenor group in restoring peatland and moorlands in parts of Cheshire and Lancashire. That will have a hugely positive impact on wildlife numbers and carbon emissions.
If the Treasury genuinely believes that we should tax farmers in the hope that they will release land to housing and property developers—trust me, we are not going to solve the housing crisis by building houses on farmland in Suffolk. It will be solved by investing in units in towns and cities, where young people really want to live and where footfall already exists. Such an argument ignores all the positive impact that many farmers have made, and it completely neglects the thousands of small families who are not rich and who may be forced to sell their farm despite having tended to the land for generations. The imposition of a new tax on inherited land will have a sad impact on family-owned farms, of which there are too many in my constituency to name. Many have spoken in recent years of the increasing difficulty of running their farms in the current economic climate. They have to negotiate a labyrinth of new environmental regulations, a new post-Brexit payment system, an energy crisis that has pushed their costs through the roof, higher interest rates and increasing competition from abroad.
To remove agricultural and business relief from these small family-owned farms could push many over the edge. What a loss that would be to our economy, to our communities and to the many families who have owned, farmed and maintained their land for generations, and who will continue to do so for generations to come.
Dr Rupa Huq (in the Chair)
I call the first Front-Bench spokesperson: Will Forster for the Liberal Democrats.
Mr Will Forster (Woking) (LD)
Wanting to leave your children something is a natural part of being a parent. Right now, inheritance tax is quite unfair. Families face a tax rate that is very high by international standards. Tax-free allowances have been frozen for some time, while house prices and inflation have gone up significantly. It is understandable that people I have met on the doorstep in Woking over the years have said that they are worried about their family being caught by that tax, even though they are by no means wealthy. Meanwhile, economists and policy experts have expressed concerns about the ways in which inheritance tax reliefs can be used. The aim of business property relief is to make sure that family businesses can pass from one generation to the next. I hope everyone here would agree that that is a worthwhile aim.
Woking is a town teeming with family businesses. We all have family businesses in our constituencies that are near and dear to our constituents and that enrich our areas not only economically but culturally, making them unique. We need to ensure that those family businesses are genuinely protected by new rules, so that they can continue from one generation to the next, and we need to ensure that they are genuinely sustainable so that the stewardship of the history and heritage of our local areas is maintained.
Experts point out that certain provisions within business property relief are not particularly well targeted at local family businesses or small businesses, which are usually the ones in most need of support. For example, it has been noted that 100% relief applies in the same degree to businesses of all sizes, from large corporations worth several billion to micro and small family shops or farms. There are also questions about accountancy practices that can give certain financial portfolios the same treatment as a local family-owned shop, pub or manufacturing business. I would welcome the Minister’s thoughts on these issues and on how the Government envisage supporting cherished family-owned companies that champion the heritage and local economy in my constituency and elsewhere.
It is equally important that family-owned farming businesses, which have been the focus of most contributions to this debate, be preserved and protected. Farming is vital to our rural communities, providing the foundation for our whole economy and our food security. We need to have the raw materials and to guarantee safety; s we live in a more dangerous world, we need to be able to feed ourselves. I would like to hear the Minister’s views on how we can continue to support agricultural businesses, ensuring that they continue to operate as family businesses, creating jobs and adding value to their area. I also urge him to recognise the contribution of our farmers practically by accelerating the roll-out of the new environmental land management scheme, properly funding it with an extra £1 billion a year to support profitable, sustainable and nature-friendly farming.
After years of Conservative chaos and neglect, there is no doubt that our NHS and social care, our schools, our local authorities and our other public services desperately need more investment, so I can understand why the Government may look at different options for raising revenue. Our GPs are overstretched, our hospitals are overcrowded and our school buildings are crumbling, but at the same time families and pensioners are struggling with the rising cost of living.
The Conservatives put up their taxes by freezing tax thresholds for years. It would be wrong to ask residents to pay again to clear up the Conservative mess. The Liberal Democrats would therefore focus tax changes on making the system fairer, such as by reversing the Conservative party’s tax cuts for big banks and imposing a proper windfall tax on the super-profits of oil and gas companies. Responsible public finances are essential to the stability, certainty and confidence that drive economic growth, and to getting mortgage rates under control.
Dr Rupa Huq (in the Chair)
For His Majesty’s loyal Opposition, I call Nigel Huddleston.
Nigel Huddleston (Droitwich and Evesham) (Con)
It is a pleasure to serve under your chairmanship, Dr Huq. I congratulate my hon. Friend the Member for Gordon and Buchan (Harriet Cross) on securing this important debate. I thank all hon. Members for their thoughtful contributions: I was particularly entertained to hear everybody’s friend the hon. Member for Strangford (Jim Shannon) say that he does not give anybody a hard time. I warn the Minister that he can expect persistent, relentless and vigorous but polite nudging; it may not be defined as a hard time, but it certainly sometimes feels like that. It is very polite, I have to say.
A few other points were raised today, but I will not delve into all the issues. Under different circumstances, I would be happy to have a debate with the hon. Member for Hexham (Joe Morris) about international trade. Having negotiated some of the trade deals, I can reassure him that the NFU and others had a very strong voice and that we listened to them very carefully. Their opinions, views and points were very often made. We tried to put safeguards in place; that has not always been acknowledged, but that is a debate for another day. The Liberal Democrat spokesperson, the hon. Member for Woking (Mr Forster), raised a bunch of other issues—again, a debate for another day.
Just two weeks before the Government deliver the Budget, I am aware that the Minister will be unwilling—and, to be fair, unable—to comment in detail on the issues that have been raised today. Nevertheless, I think it important that he and the Treasury team hear and reflect on the concerns and fears that Members have expressed on behalf of their constituents and other stakeholders who could be considerably affected by any changes to inheritance tax relief and particularly to business property relief and agricultural property relief.
My party supports wealth creation, which is important and which helps to pay for our public services, but we also understand the importance of ensuring that wealthy individuals make a fair contribution and pay tax appropriately. Earlier this year, the Minister and I had a debate about the broader issues of inheritance tax in which we recognised that we do not have a wealth tax in this country, but that there are taxes on wealth. Inheritance tax is an important such tax: it brought in something like £7.6 billion last year.
We have a progressive tax system. The top 1% of income taxpayers pay 28% of all income tax, so they contribute a huge amount. The vast majority of estates do not pay inheritance tax: only about 5% do so, because there are so many exemptions and reliefs. It is important to recognise those reliefs as legitimate. There is abuse in the tax system—there are loopholes that need closing, and HM Revenue and Customs, the Treasury and others spend a lot of time closing them—but let us not forget that the reliefs are there for a reason. Business property relief and agricultural property relief are perfectly legitimate reliefs. Without them, many businesses, including farms, would cease to exist or would be broken up on the passing of their owner. The reliefs form a critical part of overall business planning and especially of succession planning.
Many businesses, particularly small businesses, have expressed anxiety about the prospect of changes to or the abolition of business property relief. Currently, business relief is applied at either 50% or 100% on qualifying businesses when working out how much inheritance tax should be paid. That allows businesses and business assets or shares to be passed on to the next generation without the need to jeopardise the viability or even existence of vital businesses. Without that relief, many more family-owned businesses would have to be sold or broken up to pay a big inheritance tax bill. Prior to the election, many businesses and business bodies, including the Federation of Small Businesses, believed that they had heard and received commitments and assurances on inheritance tax and BPR from the Labour party. Many small businesses in my constituency and across the country seek the reiteration of those assurances.
BPR also plays an important part in attracting and retaining certain investments, for example in the alternative investment market. According to some analysts, the removal of BPR from the alternative investment market could result in a loss of between £14 billion and £21 billion in value to UK shareholders and would permanently damage the AIM. Given the importance of inheritance tax relief to the AIM, they are also looking for the Government to confirm its continuation. Uncertainty and speculation around its continuation may already be jeopardising investment.
Many hon. Members’ speeches have focused on agricultural property relief, because it is vital to the continuation of our rural way of life and our countryside. The NFU, the Country Land and Business Association and others are concerned about the renewed uncertainty and the impact on farming, including on tenant farmers. Some fear that APR may be removed and that some form of BPR may be kept, but even that could deter landowners from letting their land to tenants; the right hon. Member for Orkney and Shetland (Mr Carmichael) spoke about some of the further considerations and concerns for tenant farmers in particular.
As many colleagues have said, many farms would simply not survive the imposition of inheritance tax. Families who have farmed the land for generations could be forced to give up their businesses, their farms and their homes, which could jeopardise the sustainability of the rural economy, as well as undermining efforts towards greater self-sufficiency in food production and compromising environmental goals broadly agreed by both the former Government and the current Government.
The Secretary of State for Environment, Food and Rural Affairs confirmed last year, when he was the shadow Secretary of State, that the Labour party had no plans to change inheritance tax, including APR, if Labour won the election. Sadly, speculation has since arisen, and I do not believe that further assurances have been given by the Secretary of State or the Treasury. If the Minister can provide any certainty or even an indication to provide additional confidence, I and many of my constituents will welcome it, as will many other hon. Members’ constituents, many farmers, many investors and many business owners across the country.
Labour did not mention APR or BPR in its manifesto, nor did it make statements about them during the election campaign, but it clearly stated that it would not increase taxes on working people. As we have heard today, farmers and family business owners are very clearly working people; my hon. Friend the Member for Chester South and Eddisbury (Aphra Brandreth) made that point very well.
Given all the comments we have heard from the Labour party, I hope the Minister agrees that it is perfectly reasonable to assume that there are no plans, and should be no plans, to change the inheritance tax relief system, especially because those reliefs play such an important part in investment decisions and business planning. I therefore look forward to the Minister’s speech providing at least some of the reassurances that we seek today.
The Exchequer Secretary to the Treasury (James Murray)
It is a pleasure to serve under you in the Chair, Dr Huq. Let me join others in congratulating the hon. Member for Gordon and Buchan (Harriet Cross) on securing the debate. I thank all hon. Members for their contributions —including the advice from the shadow Minister, the hon. Member for Droitwich and Evesham (Nigel Huddleston), on what to expect in my new role from the hon. Member for Strangford (Jim Shannon).
As many Members have rightly highlighted, there has been a great deal of speculation in recent weeks about potential changes to taxation in the Budget, including to the reliefs that we are debating today. Hon Members will understand—indeed, many of them acknowledged in their speeches that they understand—that I cannot add to that speculation. The Budget is on 30 October, and my right hon. Friend the Chancellor of the Exchequer will set out any changes to the tax system then, in the normal way. However, ahead of that, I welcome this opportunity to hear Members’ views on this matter.
Let me start by briefly setting out the context for this Budget. Following the spending audit in July, the Chancellor has been clear that difficult decisions lie ahead on spending, welfare and taxation to address the £22 billion black hole that we inherited from the previous Government. Decisions on how to address that will be taken at the Budget in the round. It is crucial that we get the public finances back on a firm footing so that we can restore economic stability. On those foundations, we will boost investment, increase growth across the UK and improve public services. That is the prize ahead and how we will make people across Britain better off.
Let me turn to how inheritance tax operates in the UK tax system. Inheritance tax, as other Members have said, is a wealth transfer tax and applies to the estate of the deceased. Transfers made in the seven years before death are also taken into account. The estates of all individuals benefit from a £325,000 nil-rate band. The residence nil-rate band is a further £175,000 and is available to those passing on a qualifying residence on death to their direct descendants, such as children or grandchildren. That means that, altogether, qualifying estates can pass on up to £500,000. Furthermore, the qualifying estate of a surviving spouse or civil partner can pass on up to £1 million without an inheritance tax liability, because any unused nil-rate band or residence nil-rate band is transferable to the surviving spouse or civil partner.
Above those thresholds, the headline rate of inheritance tax is 40%, but it is important to remember that that rate is charged only on the part of the estate that is above the threshold, and after the application of reliefs. That is obviously the subject of today’s debate, so let me turn first to business property relief. That relief is a long-standing part of the inheritance tax system. It is designed to ensure that businesses need not be broken up or sold on the death of an owner in order to pay an inheritance tax liability. That reflects concerns that there may not always be enough liquid assets in the business to pay the tax. Subject to certain qualifying conditions, the relief generally applies to unquoted shares and interests in a business. It also applies to shares designated as “not listed” on a “recognised stock exchange”, such as shares that are quoted on AIM, as mentioned by the shadow Minister. The rate of business property relief is usually 100%, but can be 50% in some circumstances. Until March 1992, the maximum rate of the relief was 50% and there was a lower rate of 30% alongside that. Hon. Members may be interested to know that the cost of the relief has risen from £685 million in 2019-20 to a forecast £1.3 billion in 2023-24.
Agricultural property relief is also a long-standing part of the system. It has a similar purpose to business property relief, although the main benefit is to ensure that relief is available when land is let to tenant farmers, as we heard from various hon. Members today. This is largely because owner-occupiers of agricultural land also qualify for business property relief. Again, the rate of agricultural property relief is usually 100%, but can be 50% in some circumstances, and as with business property relief, lower rates existed before 1992. The cost of this relief has risen from £320 million in 2019-20 to a forecast £365 million in 2023-24.
There are many different views on these reliefs. Stakeholders, including Family Business UK and the Country Land and Business Association, have argued strongly against any prospect of the reliefs being abolished. Other organisations are in favour of changes to the reliefs, with the Institute for Fiscal Studies suggesting that a cap on such reliefs could allow those passing on small farms or businesses to be taken out of inheritance tax, while preventing agricultural and business investments from being used to avoid it. The right hon. Member for Orkney and Shetland (Mr Carmichael), whom I thank for his contribution, said that there may be a case for certain reforms to agricultural property relief. Of course, the previous Government had views on these reliefs. I understand from reports in the Telegraph that the previous Government considered abolishing these reliefs as part of reforms to the system.
I welcome the opportunity today to hear from Members on their views, particularly on agricultural property relief, but also on issues relating to farmers and their constituents more widely. The hon. Member for Chester South and Eddisbury (Aphra Brandreth) rightly highlighted the importance of food security for this Government and its importance in our policy making. The hon. Member for Strangford (Jim Shannon)—in nudging me gently, to quote the shadow Minister—spoke eloquently about the importance of farming in his constituency and in the economy of Northern Ireland. The hon. Member for Central Suffolk and North Ipswich (Patrick Spencer) spoke of some of the wider challenges facing the farming community in recent years, not least energy bills. My hon. Friend the Member for Hexham (Joe Morris) is proving to be a very effective constituency MP already, raising a number of important issues on behalf of those he represents, as well as drawing attention to the wider significance of having economic stability and security for farmers and everyone in his constituency.
Mr Carmichael
The Minister reminds us—it is our fault for doing this—that we have focused very much on the family farm as the unit of concern, because that is what concerns most of our constituents. However, a lot of agricultural land is, in fact, owned by bodies such as the Royal Society for the Protection of Birds, of which I am a member. The RSPB is never going to have a succession event, to join the hon. Member for Gordon and Buchan (Harriet Cross) in using that expression. The consequence of abolition could be that two farms right next door to each other—one owned by a charity or an institution of that sort, and the other owned by a family—would be left having to farm in very different economic circumstances. Is that really fair?
James Murray
I thank the right hon. Gentleman for his point, although he presupposes he knows what will happen to agricultural property relief, which, as I set out earlier, I cannot comment on further. He will have to wait a couple of weeks, perhaps, to have further conversations about what the Government will do in this space. I thank him and all hon. Members for their comments today, because it has been an interesting debate. As we have heard, the issue generates some strong views among many of our constituents and the Members present, who represent them.
I understand that there are many different views on what the Government should do, and the debate has allowed me to hear them. As always, the Government welcome all opinions and keep all taxes under review. However, I return to my earlier point: the Chancellor will, of course, announce changes to the tax system at the Budget. There is not long to wait.
Harriet Cross
I am grateful for the opportunity to wind up this debate, and I thank all right hon. and hon. Members for their contributions and the Minister for his closing remarks. A constant theme of today’s debate has been the importance of family businesses and family farms and the vital role they play in our rural economy. As the right hon. Member for Orkney and Shetland (Mr Carmichael) rightly said and, of course, knows well from his ultra-rural island constituency and communities, the interconnection between farms and other local businesses cannot be denied. Any impact on farming impacts everything else, whether that is marts, vets or suppliers—the knock-on effects are endless.
I fully agree with my hon. Friend the Member for Chester South and Eddisbury (Aphra Brandreth), and echo her words about the Government’s commitment to not increase taxes on working people. If farmers and family businesses are not the pure definition of “working people”, I really do not know what is. Similarly, I welcome the comments of the hon. Member for Hexham (Joe Morris) about the need for cross-party working on this issue; as we all strive to secure a stable rural environment for the economy and employment, that is really important. We should absolutely work on a cross-party basis as we go forward.
Farms and businesses must adapt and innovate to survive across generations. As the hon. Member for Strangford (Jim Shannon) correctly identified, the ability of farms and family businesses to do so will be severely hampered by changes to APR and BPR—they must be able to survive across generations, as well as during single generations. Put very simply, people need cash in order to pay a tax bill, and they need a lot of cash to pay a very large tax bill. As my hon. Friend the Member for Central Suffolk and North Ipswich (Patrick Spencer) put it so succinctly, asking many farmers and family businesses to pay a tax bill from an illiquid asset is very difficult: they do not have liquid to play with.
As I said, I thank the Minister for his response. I appreciate that we are less than two weeks out from the Budget, and therefore he is completely unable to confirm or deny rumours, but I hope the concerns that have been raised today have been heard and will be considered in good faith, because they are not just the concerns of people in this Chamber. They are the concerns of our constituents—of farmers and small and family businesses the length and breadth of the country. The Minister pointed out that the cost of BPR has risen to £1.3 billion, but that compares very favourably with the £225 billion of tax income that family businesses contribute to the Exchequer each year.
I will conclude by reiterating my calls for clarity on this matter, maintenance of these reliefs, and meaningful engagement with affected communities on any such matters going forward. Today’s contributions have strengthened the case for action in this area: our rural communities, family businesses, food security and stewardship of our countryside all depend on the certainty that those reliefs provide. I thank all Members for their contributions to today’s important debate.
Question put and agreed to.
Resolved,
That this House has considered Business Property Relief and Agricultural Property Relief.