Inheritance Tax Relief: Farms

David Smith Excerpts

Monday 10th February 2025 Westminster Hall

[David Smith (North Northumberland) (Lab)]

It is a pleasure to serve under your chairmanship, Sir Edward. I have held dozens and dozens of conversations with farmers across my constituency of North Northumberland. It has become clear to me that they welcome the principle of this policy, which is to stop the super-wealthy from minimising their tax liabilities by land banking with agricultural land. Not one of those farmers told me that they have a problem with the aim of the policy: to stop the wealthy avoiding tax. However, in the same conversations, many of the farmers told me that they are concerned that their businesses will be adversely affected. I wonder, therefore, if the relief element of the policy could be recalibrated.

The Government’s aim is to support our farmers and our food security, but we are doing that in a context where Tory inaction over 14 years has left great challenges, including climate change, a muddled and chaotic Brexit, and, as we have heard, deals on lamb and beef that our farmers are concerned about. We are not working in a vacuum. I am the first Labour MP in history for the vast majority of my constituency; that is not because the population were happy with what the Conservatives delivered for the countryside and farmers. I ask the Government to consider whether the balance is right. I have spoken to farmers in my constituency whose farms are worth £5 million, £8 million, £20 million and everything in between.

[Catherine Fookes]

Yesterday I visited Emma, a dairy farmer in my constituency. She still has a mortgage on her farm, which means that she cannot pass it on now. How might the inheritance tax work for her?

[David Smith]

Our farmers are facing a great many challenges, including being very over-leveraged in debt, and we should consider that. I spoke to one farmer whose land is valued at £16 million, so their new inheritance tax liability will be about £2.8 million, but they make just £96,000 profit per year. There are several examples of farmers who have low profits but face enormous bills.

[Julia Buckley (Shrewsbury) (Lab)]

My farmers in my Shrewsbury constituency have told me that they have struggled to make a profit for many years now. Indeed, they say, “The only game in town is to go big or go bust.” In other words, 12,000 small farmers have gone under because, over the last decade, farming has not been a profitable business. They tell me that they are ready to make some of the behavioural changes needed to pass the asset down to the next generation, who have just come out of agricultural college and learned all these new techniques, so that it can be profitable, sustainable and environmentally friendly. However, they also want me to pass on the information that our oldest farmers will not be able to make that behaviour change quickly enough. Will the Minister consider a temporary transitional extension to the taper, perhaps at year two, to help them to make the changes, which they are willing to do, and to make this policy work?

[David Smith]

I agree with my hon. Friend that these are some of the challenges our farmers are facing. As these examples show, the value of the land often bears no relation to the limited cash flow and the profit that is made. It is reassuring that a few tweaks to the policy would remove most of the pressure on family farms while maintaining the pressure on land bankers, who are the focus of the policy. Hardly a single North Northumberland farm will enjoy 100% relief, even with the nil-rate band, so raising the threshold would give instant peace of mind to family farmers.

I suspect that the Government could use data from the Rural Payments Agency and DEFRA to implement an active farmer test and judge whether the land is being put to public use and is therefore eligible for relief. That would differentiate intergenerational farmers and those simply buying farmland to reduce their tax liability. If a clawback mechanism is added and the land is then sold, for example, 10 years after gifting, the Government can reserve the right to claw the relief back for the public purse. Many of these measures have been in place in Ireland since 2015.

I know that the Minister is hearing the same thing that I am from farmers across the country. I urge him and his colleagues to work together to consider whether this policy can be recalibrated to achieve both the Government’s aims of supporting our nation’s family farms and of closing the loopholes that have distorted our land values for too long.

--- Later in debate ---

[Graham Stuart]

I am afraid that the hon. Gentleman shrunk inside his shell, and the farmers in his constituency will have heard that.

It is possible to challenge one’s Government. I said to my Whips then that the best service we could do the Government was to prevent them from doing something stupid, harmful and alienating to voters. I hope that Government Members can see that, because the Opposition cannot change this. People outside say to me, “Can we get this changed?” It is actually up to Labour MPs. They have the majority. Democracy is not about having a majority and doing what one likes. Democracy is about listening and doing what the now Prime Minister told the NFU when he said:

“You deserve a Government that listens, that heeds early warnings”.

There are one or two warnings about. Listen, change: if the Government change, four years on, no one will remember the U-turn. Whatever civil servants say—they are always very keen to stick with a policy—if it is wrong, stop doing it. And this is wrong. In the minute and 20 seconds I have left, let me say why it is so wrong. We have touched on the various elements, but I am not sure we have pulled it all together.

We have a really peculiar group of businesspeople in this country; they are called farmers. They take a return on capital—the millions they have invested in their farms—that is typically less than 1%. There is nobody that I am aware of—no business I was ever involved in—that would remotely consider continuing in an industry that paid less than 1%. These farmers take a pittance and get up at 4 o’clock in the morning for the privilege. They look after the animals and it does not matter if they are ill; they cannot carry their employment rights and go, “I’m not well, I shouldn’t have to go out,” because the cows do not care: they have to go out and look after them, and then they get less than 1% return. Those farmers, the most beneficent public-minded businesspeople in the whole country, then provide excellent food at among the lowest prices in Europe. If ever there were a business that we would not want to go and mess with, it is these—I should not say it, because I will make enemies of them.

[David Smith]

I thank the hon. Member for his scoring system, but can he confirm whether he was part of the last Government, which failed to get £300 million of subsidies to farmers out the door?

[Graham Stuart]

For the hon. Gentleman’s political career, as he has been so brave today, I entirely forgive him that piece of whataboutery.

We must understand how remarkable it is that there is a whole group of businesspeople who take practically nothing from their business, work all the hours God gives, and provide us with some of the finest food in the world at among the lowest prices in Europe. Why would we want to mess with that? Not only do they do that, but they brainwash their children from the earliest age so that they carry on doing it. These people are in indentured service to the nation, providing food while making very little profit. They do it willingly and, in fact, love it: it is their life. To go and mess with them out of some stupid, socialist spite is ridiculous and absurd, and Government Members know that—the hon. Member for North Northumberland certainly does, and he should lead his colleagues to tell the Chancellor to change course, just as we did in 2012 when George Osborne got it wrong.