Inheritance Tax Relief: Farms

Damian Hinds Excerpts

Monday 10th February 2025 Westminster Hall

[Damian Hinds (East Hampshire) (Con)]

The Government talk a lot about growth, and we often debate economic growth both here and in the main Chamber, but when we talk about farming, we talk instead about food production, sufficiency and security. We talk about land stewardship, we talk about fairness, and we talk about rural communities and the countryside way of life. All those things are true and relevant, but this is also a debate about economic growth.

Economic growth requires productivity gains and productivity gains require investment, and this policy is clearly going to hit investment in the vital rural sector badly. That is intuitively obvious, because there is now a new liability that agricultural businesses have to plan for. It also chimes entirely with what I hear in and around Hampshire from agricultural suppliers and machinery dealers about redundancies, depot closures and projects being cancelled. My question to the Minister is: what monitoring are the Government doing of investment in the agricultural sector and the harm that this policy may do to productivity?

It is often said, and it has been said again today, that farming is not a normal business. My East Hampshire farmers are very quick to remind us that it is a business, and they have to be able to make a living, but it is abnormal in one key sense: economists talk about normal profit and supernormal profit, but there is no such thing as sub-normal profit. If a business is not making enough to be economic, the idea is that it is not in business, and many of these farming businesses are not. These are farmers who accept a sub-economic return on capital employed, and they do that because while their farm is a business, it is more than just a business, a job or an investment. Ministers should not expect the same approach to be taken if family farms are broken up and replaced by something else.

The Government have repeatedly said, “Don’t worry. The effect of this will be reduced because couples can pass on assets between them.” However, we know from a written question tabled by my right hon. Friend the Member for North East Cambridgeshire (Steve Barclay), that only half of farmers are in couples. Almost half are individuals, and this policy will affect far more farms than I think, to be fair to them, the Treasury or officials even realised to begin with, and certainly far more than the numbers we have discussed in this House. There are reasons why agricultural relief was first brought in. It was not a loophole or an accident; it was brought in to achieve a purpose, and there are reasons why it has been retained all these years.

It is not unheard of for a Government to discover that when they bring in a tax, its effect in practice is not quite as they expected when they did the spreadsheet and when the Minister signed off the sub. It is not too late for this Minister and this Government to change their minds and to make significant changes. There is no shame in it, and I urge them to do so.

--- Later in debate ---

[James Murray]

I will make a little progress, and then take interventions in a second.

The data that I just referred to on where the relief currently goes—I was going to address in a moment the data on how many estates making claims we think will be affected in 2026-27—is based on actual claims, so we believe it is the right data on which to base the reforms.

[Damian Hinds]

Will the Minister give way?

[James Murray]

I will take interventions in a moment, but let me make a little progress. Based on the statistics I have just set out, which show where the bulk of the benefit from agricultural property relief and business property relief has been going, we felt it was appropriate to reform how those reliefs operate. That is why the Government decided to change how we target agricultural property relief and business property relief from April 2026. As I have said, we are doing so in a way that maintains significant tax relief for all estates, including for small farms and businesses, while making sure that we repair the public finances.

Under the reforms that we have announced, all individuals will, of course, be able to access the general nil-rate bands and spousal exemptions that apply within the inheritance tax system. On top of those allowances, any business and agricultural property within people’s estates will benefit from 100% relief on a further £1 million of combined assets, except in cases of shares designated as “not listed” on the markets of recognised stock exchanges. Beyond the £1 million of full relief, a further 50% relief will apply with no limit. That means that any inheritance tax paid will be at a reduced effective rate of up to 20%, rather than the standard 40%.