Budget: Implications for Farming Communities
(Limited Text - Ministerial Extracts only)
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Lord Roborough (Con)
My Lords, I refer the House to my interests as set out in the register, including as a farmer. The removal of half of inheritance tax relief over £1 million under agricultural property relief and business property relief is an attack on all family-owned businesses. Working family farmers are the least able to afford this tax due to high asset values and low incomes. How can the Minister defend this tax to the family farming community and all family businesses, where investment, entrepreneurship and aspiration are now undermined?
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Baroness Hayman of Ullock) (Lab)
My Lords, we understand farmers’ anxiety at changes to agricultural property relief. However, the vast majority of those claiming relief will not be affected by the changes. The latest data available shows that the top 7% of claims for agricultural property relief in 2021-22 accounted for 40% of the cost of the tax relief, with the top 2% accounting for 22% of the cost. Most families will be able to pass the family farm down to their children, just as previous generations have always done.
Baroness Ritchie of Downpatrick (Lab)
My Lords, farmers in Northern Ireland greatly appreciate that my noble friend the Minister has met the devolved Minister on a fairly regular basis to discuss a wide range of issues. When she next meets the Minister of Agriculture, the Ulster Farmers Union and the agricultural producers in the region, will she discuss the need for tax amelioration measures to provide for succession planning, to encourage young people into farming and protect farm families? There is a unique issue in Northern Ireland which needs to be addressed.
Baroness Hayman of Ullock (Lab)
As the noble Baroness said, I meet the Minister of Agriculture in Northern Ireland regularly and met the Ulster Farmers Union very recently, as well as the noble Baroness, to discuss these issues, and I know that my officials meet various organisations regularly to discuss them. I will be back in Belfast towards the end of this month and hope to meet the Ulster Farmers Union again shortly. As she pointed out, tax and succession planning is incredibly important. There is an issue with getting young people into farming, and I recommend that people talk to professionals about what is available to them for tax purposes going forward.
Baroness Bakewell of Hardington Mandeville (LD)
My Lords, a sustainable supply of food is essential for the country. The farming community is key to achieving this goal. The perception that farmers are wealthy is erroneous. Farmers have seen their income shrink as a result of the slow implementation of ELMS, and now they face the prospect of having to sell off or dismantle family farms to pay inheritance tax. The appalling headline “We can’t afford to let farmers die tax-free” is a gross distortion of the truth. What is the Minister doing to reverse this impression?
Baroness Hayman of Ullock (Lab)
As I mentioned in my answer to the first question, most family farms will not be affected. The latest data shows that the top 7% of claims for agricultural property relief accounted for 40%. Regarding food security, we have made the largest ever investment in sustainable food production through the environmental land management schemes and are securing long-term food production through them. As part of the Budget, we announced £60 million for the farming recovery fund to support farmers affected by unprecedented extreme wet weather last winter, which the previous Government had not paid.
The Earl of Devon (CB)
My Lords, UK farming suffers a chronic lack of productivity and an ageing cohort of farmers. They have been encouraged to hold on to their farms by virtue of agricultural property relief and the inheritance tax benefit of dying in situ. APR reform may therefore improve matters by encouraging earlier transfer to younger generations. However, it will unduly punish those elderly farmers who have estate-planned with APR in mind. What will the Government do to ensure that those elderly farmers who are terribly stressed by this reform and who will not survive seven years are not unduly punished?
Baroness Hayman of Ullock (Lab)
The noble Earl makes an incredibly important point. We are aware that this is an issue. I stress that farmers will be able to access 100% relief for the first £1 million and 50% relief thereafter. That means an effective 20% tax relief rate and that an individual can pass up to £2 million, and a couple up to £3 million between them, to a direct descendant inheritance tax free. It is important that we make that clear. However, I stress again that there is financial advice out there. Many businesses and individuals take tax advice. I encourage all businesses, including farms, to do so.
Viscount Hailsham (Con)
My Lords, I declare an interest; while I no longer have agricultural land, members of my family do. Last year, on 20 December, the NFU issued a press statement which stated that Steve Reed, then shadow Defra Secretary, had assured the NFU that Labour had no plans to change agricultural property relief. The then NFU president said that
“it’s good to see Labour has listened to our concerns and recognised the importance of keeping this policy”.
Did the NFU misunderstand what Mr Reed said? Was Mr Reed unaware of the Chancellor’s plans? Had those plans been concealed from Mr Reed—or was the NFU being misled?
Baroness Hayman of Ullock (Lab)
Clearly, I cannot comment on the detail of a meeting that I did not attend. However, the Government’s commitment to supporting farmers and rural communities is unwavering and we have demonstrated this by committing £5 billion in the agricultural budget over the next two years. That is the biggest ever budget for sustainable food production and nature’s recovery.
The Lord Bishop of St Albans
My Lords, can the Minister help us a little? The Treasury figures state that fewer than 25% of farm businesses will be affected by the changes to APR on inheritance tax. However, the NFU estimates that up to half of all working farms could be impacted by the new tax rules. Why is there such a large discrepancy? Can she help us to understand what is going on?
Baroness Hayman of Ullock (Lab)
There are two things here. People are looking just at the first £1 million and not at the opportunity for individuals to pass further tax reliefs on, of up to £2 million for one individual and £3 million for a couple. Also, there has been confusion around the data given out by Defra and the Treasury. The Treasury data shows that around 500 estates a year across the UK would be impacted to some extent and about 25% of the total number of estates currently making use of APR. What the Defra data shows is the asset value of farms in England so, by looking at that data, people have assumed that more farms would be impacted. But you cannot draw a straight line between asset value and what it means for inheritance tax, because the number of claims—how many people would be impacted by the change—is affected by many things, such as who owns the business, the nature of the ownership, how many owners there are, how they plan their affairs, and so on; this is where you have some of the confusion.
Lord Watts (Lab)
My Lords, can I congratulate the Minister and the Government on ending this unfair treatment of farmers? This is not about farmers; it is about landowners. As we know, millionaire landowners have been buying up land to avoid taxes, and it is about time the Government caught up with them.
Baroness Hayman of Ullock (Lab)
My Lords, I appreciate the concerns that farmers have. I think they should look accurately at the figures. My noble friend makes an important point that some large landowners have been using the APR relief as a tax loophole.
Baroness Hayman of Ullock (Lab)
As I mentioned, I meet the Minister in Northern Ireland regularly. The noble Lord says that most of the farms are very small. My understanding is that the buildings—the actual farmhouses themselves—are not included, so that should not have an impact; but if I am wrong, I will clarify that to him. I know that the noble Baroness, Lady Rock, was very keen to ask about tenant farmers. We are having close conversations with the Tenant Farmers Association. I know that the Farming Minister met George Dunn yesterday, and if she would like to discuss the tenant farming aspect further with me I would be very pleased to do so.