Small Farms and Family Businesses

Lord Northbrook Excerpts

Thursday 12th December 2024 Lords Chamber

[Lord Northbrook (Con)]

My Lords, I declare my interest as a Hampshire farm owner.

The Prime Minister, when speaking to the NFU in 2023, pledged to have

“a new relationship with the countryside and farmers”.

He promised to provide certainty and to work with farmers, insisting that

“food security is national security”.

Also, the Defra Secretary Steve Reed, while in opposition, provided multiple reassurances that Labour had no plans to change agricultural property relief. In this speech I will be refuting several government claims to justify the tax change and how they are underestimating its impact on family farms. For this information, I am drawing on briefings from the CLA and NFU. Can the Minister respond to my refutations?

The first claim is that it will affect only a small number of farms. Several bodies and member organisations in the rural sector have independently concluded that this is inaccurate. The CLA estimates that, in its current form, the cap could affect 70,000 farms in the UK over a generation. Significantly, these farms make up 75% of the utilised agricultural area in the UK. This means that, although the cap may not affect the smallest holdings, it has the potential to be immensely damaging to UK food security.

CLA modelling has also found that, for an average arable farm in England, IHT will start applying at 250 acres for a farming couple and 100 acres for a single farmer. With the average farm at around 215 acres, it cannot be claimed that only the largest farms will be affected. This cap will lead to transformational change in the industry over time. The CLA has already heard of numerous examples of rural businesses stopping investment due to these changes.

The next government claim is that most farms will not be affected until they are worth £3 million. It is true that some farming couples will be allowed assets worth up to £3 million before IHT occurs on their farm. However, the £3 million will be available only if both the couple’s nil-rate bands are not used up, and if resident nil-rate relief is available in both cases. Often it is not.

The position also fails to consider the 46% of farms that are owned by single farmers. CLA modelling shows that a typical 200-acre farm owned by an individual with an expected profit of £27,300 would face an IHT liability of £370,000. If spread over a period of 10 years, this would require the farm to allocate 136% of its profit each year to cover the tax bill. To meet this bill, successors could be compelled to sell 16% of their land. For a 250-acre single farmer, the cost would be 151% of their yearly profit for a decade. The fact that these costs are spread over a decade means little to working farms if they are forced to pay over 100% of their yearly profit for each of those 10 years in order to fund their IHT bill.

The next government claim is that, with good succession planning, most farmers will not have to pay IHT. On several occasions, the Government have hinted at this. This misunderstands farming businesses. A major concern is based around rules on gifts with reservation of benefit. In its current form, to avoid IHT, a farmer will have to pass on their land to a successor seven years prior to their death. However, for this transfer to be valid, the farmer cannot take income from the farm or live in their property without paying a market rent for those seven years and after. This is a major concern, as a significant number of farmers do not hold a pension. A recent assessment from Investec wealth management found that 96% of farmers see their farm as their pension, while 46% expect the farm to provide more than 50% of their retirement income. These farmers will not be in a position to succession plan and avoid IHT. In addition, as acknowledged by independent organisations such as the IFS, this policy is unfair to those who will pass on in the next seven years.