Inheritance Tax Relief: Farms

Debate between David Smith and Julia Buckley

Monday 10th February 2025 Westminster Hall

[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.