Agricultural and Business Property Reliefs: OBR Costing
(Limited Text - Ministerial Extracts only)
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Baroness Neville-Rolfe (Con)
My Lords, I refer to my register of interests: a third share in two small Wiltshire fields—what is left of the marginal family farm of my childhood.
I am not surprised that the increases in agricultural and business property taxes in the Budget have proved to be friendless, except in some deeply urban areas. This was demonstrated in last week’s debate on this Question about costs in the other place.
The truth is, the Government have miscalculated. They expected a vindictive tax grab on large estates to be welcomed by those of an envious disposition. Instead, the difficulties faced by the working family farms which produce so much of our food have been noticed, even by the supermarkets. Elderly farmers are especially desperate.
The Government have the ghastly choice of brazening the matter out or making some sensible concessions. There are already whisperings about the latter. Will the Minister help to ensure that the Government reduce the harm to agricultural investment and food security of this misguided policy?
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
My Lords, I am grateful to the noble Baroness for her question. I do, however, totally dispute her characterisation of this policy. At the Budget, we had to take some very difficult decisions on welfare spending and tax that were necessary to fix the public finances and support our public services. We had to do that to address the mess that we inherited from the previous Government. We took those decisions in a way that makes the tax system fairer and more sustainable.
As a result of the measures we are taking, individuals will continue to be able to claim 100% relief for the first £1 million of combined business and agricultural assets, and 50% thereafter. Given the nil-rate bands, that means a couple can pass on up to £3 million between them to a direct descendant inheritance tax-free. In answer to the noble Baroness’s question, the measures will go ahead as planned.
Baroness Kramer (LD)
My Lords, my colleagues on these Benches have made it clear that we oppose this tax change; we are concerned about the impact of it on family farms and the rural economy, and the knock-on effect on food pricing and food security. We have proposed alternative taxes in lieu. However, in the spirit of compromise, I propose that the Minister looks at lifting the individual thresholds for inheritance tax and agricultural property to £3 million. It would provide great relief for the genuine small farms and would still capture those who are seeking to use investment in farm property as a loophole for tax avoidance. Frankly, having seen the OBR numbers, it would be a very little loss to the Exchequer.
Lord Livermore (Lab)
I am very grateful, as always, to the noble Baroness for her spirit of compromise. As I said in answer to the previous question, given the nil-rate bands, a couple can pass on up to £3 million between them to a direct descendant inheritance tax-free.
Lord Carrington (CB)
My Lords, growth, a government priority, requires investment. What assessment have the Government made of the effect of reducing the reliefs on investment in farming?
Lord Livermore (Lab)
The Government set out their modelling at the Budget and, more recently, the Chancellor provided very extensive additional details to the Treasury Select Committee on exactly that point, including in her follow-up letter. That modelling was backed up by the OBR, as shown in the publication last week.
Baroness McIntosh of Pickering (Con)
My Lords, can the Minister say how much the Government expect to raise from the abolition of APR and its consequential impact on inheritance tax relief? The Office for Budget Responsibility, in its Supplementary Forecast Information Release of 22 January, stated very clearly, in paragraph 1.11 on page four:
“The central estimate for the costing is an increase in revenue of £0.5 billion by 2029-30”.
Is that really all that the Government expect to raise from this very cruel measure?
Lord Livermore (Lab)
Yes, it is—and it will go a very long way to help our public services after years of neglect. I completely disagree with the noble Baroness’s characterisation of this policy.
Baroness O’Grady of Upper Holloway (Lab)
My Lords, does my noble friend the Minister agree that big supermarkets could do more to support farmers in Britain, who are under pressure from the squeeze on prices that big supermarkets are setting? At least one big supermarket achieved more than £2 billion of pre-tax profits—an increase of 15%—last year.
Lord Livermore (Lab)
I certainly agree with my noble friend on the specific point that farmers’ incomes are under pressure, and we must do everything we can, as a Government, to support farmers in that respect. It is worth adding that we will continue to work in partnership with the large supermarket chains. We are determined to work with businesses right across the country to drive economic growth.
Lord Macpherson of Earl’s Court (CB)
My Lords, does the Minister agree that the OBR note confirms that farmers and businesspeople have a large number of options for reducing their inheritance tax liability? Does he agree that, in so far as the measure encourages farmers to pass on their farms to younger, more dynamic successors, it is as likely to increase productivity as to reduce it?
Lord Livermore (Lab)
I absolutely agree with everything that the noble Lord said. Last week’s publication from the OBR does not contain any new information about its view on the fiscal impact of this policy; it remains the same as it set out in its Economic and Fiscal Outlook for the 2024 Budget. The noble Lord’s question relates to that of the noble Baroness, Lady McIntosh of Pickering. The OBR described this as “highly uncertain” because such a wide range of tax planning options are available to respond to this policy change, including being able to pass on up to £3 million tax-free. The noble Lord was also correct to say that the current system, particularly the extent to which it drives up land prices, has locked out young farmers from being able to own property—and them being able to do so is undoubtedly a good thing.
Baroness Penn (Con)
My Lords, the costings we have seen for this policy tend to put APR and BPR together. Can the Minister provide figures for the effects of each separately?
Lord Livermore (Lab)
They have been costed jointly at £0.5 billion, as the noble Baroness, Lady McIntosh of Pickering, said.
Lord Whitty (Lab)
My Lords, while I am not entirely happy about this policy, I recognise that it has been done and that it will stand. However, I suggest to the Treasury and Defra that, if they are looking for taxation from landowners, they should look at the companies, individuals and institutions buying agricultural land to set against their profits elsewhere—or indeed to greenwash their carbon-creating activities elsewhere—and at those who make a killing from a change of use, rather than directing their tax increases at small family farms.
Lord Livermore (Lab)
Just to be clear with my noble friend, we are not doing what he says at the end of his question. I think it is worth revisiting the rationale for this policy in the first place. Of course, the Government recognise the role that reliefs play in supporting farms and small businesses. Importantly, the reliefs will continue to play that role, but the reality is that the full, unlimited exemption, which was introduced in 1992, has become unsustainable. Under the current system, the 100% relief on business and agricultural assets is heavily skewed towards the wealthiest landowners and business owners. According to the latest data from HMRC, 40% of agricultural property relief is claimed by just 7% of estates—that is just 117 estates claiming £219 million of relief. It is neither fair nor sustainable to maintain such a large tax break for such a small number of claimants.
Lord Berkeley of Knighton (CB)
Can I ask for clarification on one thing? Using the Minister’s figures, if a farm was worth, say, £2 million or £3 million—and of course many farms, and I would say most, are worth at least that, if not a great deal more—what would be the situation if the farmer is unmarried or does not have a civil partnership? That is not a farm that he would then be able to pass on to the next generation, given the Minister’s figures. Am I correct?
Lord Livermore (Lab)
They would, absolutely; of course they can pass that farm on. To be very clear: there is 100% relief for the first £1 million of combined business and agricultural assets. Above that amount there will be 50% relief. This means that inheritance tax will be paid at a reduced effective rate up to 20%, rather than the standard 40%. The reliefs also sit on top of all the other spousal exemptions and nil-rate bands. So full exemptions for transfers between spouses and civil partners will continue. I accept that in the example the noble Lord gives that is not the case, but any inheritance tax liability after that, on relevant assets, can be paid in 10 annual instalments, in most circumstances completely interest-free. All those circumstances are vastly more generous than in other parts of the tax system.