Agricultural Property Relief

Alistair Carmichael Excerpts

Tuesday 28th January 2025 Westminster Hall

[Ann Davies (Caerfyrddin) (PC)]

I beg to move,

That this House has considered the impact of changes to Agricultural Property Relief.

It is a pleasure to serve under your chairmanship, Mr Stringer. I refer Members to my entry in the Register of Members’ Financial Interest as a tenant dairy farmer. In Wales, 80% of our land is given over to farming, and our food foundation sector—including businesses that produce, process, manufacture and wholesale food and drink goods—is a vital part of our economy, hitting a turnover of £9.3 billion in 2023. In fact, Cabinet Ministers in the Labour Welsh Government have lauded Wales as a “food nation”, but the UK Government’s decision in the autumn Budget to change the agricultural property relief and business property relief will have a real effect on food, sustainable food production and food security in Wales.

Business property relief and agricultural property relief were introduced in the 1970s and the 1980s respectively to ensure that a farm or family business could continue trading after the owner’s death, protecting it from being sold and broken up. However, on 30 October 2024, the Chancellor of the Exchequer announced that the Labour UK Government intend to change APR and BPR conditions from 6 April 2026. From that date, 100% relief from inheritance tax will be restricted to the first £1 million of combined agricultural and business property, and 50% thereafter. The proposals equate to landowners paying inheritance tax at a rate of 20% of estate value, with the threshold from which they pay being dependent on individual circumstances. That tax is payable in instalments over 10 years without interest.

Combining APR and BPR under those changes means that the asset value of the tools and the machinery necessary to operate a farming business are affected, as well as the agricultural land and property, alongside any diversification activities that the UK Government have told farmers to explore to increase their income. The UK Government contend that those changes will affect around 500 estates a year, and that small family farms will not be affected, but organisations within the agricultural sector say otherwise.

The National Farmers Union calculated that 75% of commercial family farms will fall above the £1 million threshold across the UK. The Farmers’ Union of Wales, using other figures, estimated that essentially all farms that produce nearly 90% of agricultural output in Wales could be liable under the changes. In fact, Eirian Humphreys of LHP Accountants, a large accountancy firm across south and west Wales, told me that of the 51 farming clients who have inquired about those changes so far, 46—around 90%—will have to pay inheritance tax if they die after 6 April 2026.

[Mr Alistair Carmichael (Orkney and Shetland) (LD)]

I congratulate the hon. Lady on bringing this matter before the House again. On the subject of the 500 estates, can we all agree that that only relates to the number of estates that claim under APR? It does not take account of the effect of APR and BPR together. In fact, BPR valuations are taken at book value, not at market value, so the number of estates that are liable must inevitably be massively greater than 500.

[Ann Davies]

Absolutely. We all know that is the case.

[The Parliamentary Secretary to the Treasury (Torsten Bell)]

indicated dissent.

[Mr Carmichael]

The Minister is shaking his head. I wonder whether the hon. Lady would join me in inviting him to intervene to explain why that fact is wrong.

[Ann Davies]

I do not know whether the Minister would like to do so now or at the end. It is up to him.

--- Later in debate ---

[Mr Alistair Carmichael (Orkney and Shetland) (LD)]

I had put in to speak, but when I saw the attendance in the Chamber, I thought I would exercise a self-denying ordinance. That seems to have been counterproductive, so I will take a couple of minutes to drill down into some of the underlying assumptions in relation to this issue.

Let us bear in mind that there are three ways in which agricultural land can be passed on in succession. It can be relieved under agricultural property relief, under business property relief, or under a combination of the two. Hitherto, that has offered executry practitioners and others a range of different options. Frankly, as long as the land qualified as agricultural farming land, it did not really matter which route was taken.

In fact, any value was pretty academic because there was 100% relief in any event. I suspect that is why the HMRC guidance in relation to business property relief says that for a relief claimed under BPR, the book value, if I can use that shorthand, should be used. There is then no need to have the full market value. The letter that the Chancellor sent to the Treasury Committee on 15 November last year made no reference to those estates that passed on land under BPR only. To my mind, it is almost certainly the case that a large number of other farms will be caught by the measure that have not been included in Treasury calculations.

That view is reinforced today by the publication of the report by the Agriculture and Horticulture Development Board, which, as the hon. Member for Bridlington and The Wolds (Charlie Dewhirst) said, is a non-departmental public body of DEFRA. The body is levy funded, but the press release says that it is not for it to say whether inheritance tax should be exigible in these circumstances—it just wishes to inform the debate with its analysis. Its analysis is that 42,204 farms out of 54,938 of 50 hectares or more will be affected.

That must surely give the Treasury some cause for concern, and a basis on which it could pause the change. We still have a long time to go; it will not be in the Finance Bill until October or November of this year. Where an element of doubt exists, it would surely be sensible for everyone concerned if the Treasury were to engage in a meaningful dialogue with the farming unions and others.

[John Glen (Salisbury) (Con)]

The right hon. Gentleman is making an extremely fair assessment. Does he acknowledge that the Treasury is full of capable civil servants and Ministers who have a number of other options available to them? No doubt the argument will be that there is a black hole to fill, but even if one does accept that, there are still better options overall for the agricultural and rural communities that serve us across this country.

[Mr Carmichael]

There are other options. On another day, with more time available, we might be able to look at what the tax take will be for the changes. The Secretary of State, when he gave evidence to the Select Committee, said that they were not going to be a problem because most people will avoid them. In fact, there will be opportunities for that to be the case.

The underlying concern here, which the Minister has the opportunity to address, is whether the Government still adhere to the belief that there is a public policy interest in ensuring the transition of family farms down the generations. If that was the original basis on which the reliefs were introduced, and if it remains the policy objective to this day, the figures need to be looked at more carefully. The thresholds could be increased or there could be a 10-year clawback—whatever the solution may be; the industry is full of ideas. There are any number of people who will come forward with suggestions for the things that at least some people in Government say they sought to achieve by making the change.

If—the Prime Minister was not very clear about this; well, he was clear that he was not bothered—the object was to avoid the super-rich using land to shelter their wealth, there are better ways of doing that. The Minister will get full co-operation from the farming unions and communities, but in order to have that, there has to be a dialogue. At the moment we are getting nothing from the Treasury. If he takes no other message back to the Treasury today, he should take this: the Chancellor must meet the farming unions.

[Graham Stringer (in the Chair)]

We are back on schedule, so there are 10 minutes each for the Front-Bench spokespeople.

--- Later in debate ---

[Torsten Bell]

The point I was making was about the hon. Member’s point that the relief had been scrapped; I was just making the point that the reliefs have certainly not been scrapped and that they remain very generous indeed.

Beyond the thresholds I mentioned, the 50% relief will continue and there will be a reduced marginal inheritance tax rate of 20%, rather than the standard 40%. Furthermore, in response to the points raised by several Members today about the cash-flow challenges that some farms face, particularly after bad years like last year, I will point out that heirs can spread the payments over 10 years interest-free, which is a benefit that is not seen anywhere else in the inheritance tax system.

[Mr Carmichael]

If people are looking at a £400,000 bill, which is what they would pay on a £3 million farm, and they earn £25,000 a year, they will still struggle to make that payment in 10 years; in fact, it would be downright impossible. That is how the land gets sold.

[Torsten Bell]

I will not comment on the individual example the right hon. Gentleman gave, but in general he is right to say that there can be large variations in the profits of farms between years and between farms. That is partly why the tax system already allows us—uniquely for farmers—to average profits over periods of time. Obviously, our advice to all farmers who think they will be affected by the change is that they should seek advice in turn.

I turn to the impact that these reforms will have, as that has been the central focus of most comments today.