Agricultural and Business Property Reliefs: OBR Costing

Lord Berkeley of Knighton Excerpts

Monday 27th January 2025 Lords Chamber

[Lord Livermore (Lab)]

Just to be clear with my noble friend, we are not doing what he says at the end of his question. I think it is worth revisiting the rationale for this policy in the first place. Of course, the Government recognise the role that reliefs play in supporting farms and small businesses. Importantly, the reliefs will continue to play that role, but the reality is that the full, unlimited exemption, which was introduced in 1992, has become unsustainable. Under the current system, the 100% relief on business and agricultural assets is heavily skewed towards the wealthiest landowners and business owners. According to the latest data from HMRC, 40% of agricultural property relief is claimed by just 7% of estates—that is just 117 estates claiming £219 million of relief. It is neither fair nor sustainable to maintain such a large tax break for such a small number of claimants.

[Lord Berkeley of Knighton (CB)]

Can I ask for clarification on one thing? Using the Minister’s figures, if a farm was worth, say, £2 million or £3 million—and of course many farms, and I would say most, are worth at least that, if not a great deal more—what would be the situation if the farmer is unmarried or does not have a civil partnership? That is not a farm that he would then be able to pass on to the next generation, given the Minister’s figures. Am I correct?

[Lord Livermore (Lab)]

They would, absolutely; of course they can pass that farm on. To be very clear: there is 100% relief for the first £1 million of combined business and agricultural assets. Above that amount there will be 50% relief. This means that inheritance tax will be paid at a reduced effective rate up to 20%, rather than the standard 40%. The reliefs also sit on top of all the other spousal exemptions and nil-rate bands. So full exemptions for transfers between spouses and civil partners will continue. I accept that in the example the noble Lord gives that is not the case, but any inheritance tax liability after that, on relevant assets, can be paid in 10 annual instalments, in most circumstances completely interest-free. All those circumstances are vastly more generous than in other parts of the tax system.