Small Farms and Family Businesses

Lord Londesborough Excerpts

Thursday 12th December 2024 Lords Chamber

[Lord Londesborough (CB)]

My Lords, I too salute the noble Earl for securing this topical debate. Like others here today, he is an excellent example of this place’s vintage intake of hereditaries in 2021—but I am in danger of straying into yesterday’s debate.

I will focus on family businesses and inheritance tax overall. Given the dire state of our public finances, I acknowledge that this Government had no choice but to raise taxes in the Budget, but it is the way that it was done that troubles me. I have been an outspoken critic and raised a number of questions in this place on the impact of employer national insurance and capital gains tax increases and the minimum wage hike. We now have the troubling issue of inheritance tax and how to levy it in a way that is proportionate and does not unduly damage the economy.

Why should family businesses, and indeed farmers, not share in the burden of inheritance tax like the rest of us, particularly those sitting on valuable assets? It is a perfectly reasonable question. In my own case, I set up and built a business over 30 years, which I sold back in 2014. The sales proceeds first incurred capital gains tax—which, interestingly, thanks to Gordon Brown, had dropped to a much lower rate than under previous Conservative Governments—and, on my death, whenever that will be, a 40% inheritance tax will be applied to virtually all those proceeds, bar £325,000.

This was not a family business; I had no intention of burdening my son or daughter with succession, but that would have been far more tax efficient, as the noble Earl, Lord Devon, already noted. It would not have been in the interest of the company, the staff or the shareholders, let alone my children or indeed the wider economy. My point is that family succession can be far from optimal—just look at the Trumps and the Murdochs, for instance. Economies thrive from the trading of assets and changes of ownership.

I accept that, for small family businesses and farms, the situation is more complex, as we have already heard. In my attempt to be a constructive Cross-Bencher, I will propose to the Government three changes. First, they should cap BPR and APR at £2.5 million per person, rather than at £1 million. Secondly, they should apply the 20% inheritance tax rate above that figure up to £5 million. Thirdly, above that figure, they should apply the full 40% rate—the rate that most of us pay from a much lower level. That, in my view, is more measured and proportionate, and would still generate the budgeted tax revenues. It means that the very asset-rich will contribute more—as I think they should. Yes, some may have to sell their businesses or some of their assets, but that is life and how a modern economy should work.