Agricultural Property Relief

Torsten Bell Excerpts

Tuesday 28th January 2025 Westminster Hall

[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.

[Torsten Bell]

I will at some length explain why the remarks that the right hon. Gentleman just made—

[Graham Stringer (in the Chair)]

Order. If Members wish to make an intervention, they should stand to do so. It is up to the person who is speaking whether to accept an intervention.

I was going to say this at the end of Ann Davies’s speech, but I will say it now. This debate is oversubscribed, so I will put a time limit on speeches. Members should make short interventions, because interventions will mean less time for those people who have put in to speak.

--- Later in debate ---

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

It is a pleasure to speak in this debate with you in the Chair, Mr Stringer. I congratulate the hon. Member for Caerfyrddin (Ann Davies) on securing this debate and for engaging with many different pronunciations of the name of her constituency over the course of the last hour and a half. She rightly makes a powerful case for Welsh farming, which all of us in south Wales would like to reinforce.

We will not all agree on the policy under discussion today, but we all agree that topics such as this are important to many and should be properly discussed in this place—ideally at a lower temperature than in this room. I have listened closely to the contributions to the debate, and I thank all hon. Members for setting out their views and for speaking on behalf of not only their constituents, but their acquaintances, friends and family members. The hon. Member for Caithness, Sutherland and Easter Ross (Jamie Stone) made a clear case about the emotional, not just economic, importance of land to farmers and farming families. Most of us will have someone close to us who farms, but even those who do not will recognise the huge contribution that our farmers make to our food security, our economy and our rural communities. None of us takes those contributions for granted, and we have heard that today.

Before I turn to the specific points raised by hon. Members, I will briefly—I promise it will be brief—set out the context for the Budget decisions we are debating. This Government’s inheritance matters, however much the hon. Member for Keighley and Ilkley (Robbie Moore) declines to mention it. We had unsustainable public finances, equally unsustainable and struggling public services, councils going bust and prisons overflowing, so tough decisions were unavoidable in the Budget if we were to restore economic stability, fix the public finances and support public service. That is the backdrop to the decision to reform agricultural property relief.

That decision was not taken lightly, but it was a necessary decision, not least because rural communities lose out more than most when health, transport and council services across the UK do not live up to the standards that any of us expect. It was the right decision, because the Government will maintain significant levels of inheritance tax relief for agricultural property, far beyond what is available for most assets, because we recognise the role that those reliefs play in supporting farmers.

The debate is really about how we balance the objectives of protecting family farms with the public finances and public services. The status quo—the full, unlimited exemption introduced in 1992—has become unsustainable. The benefits have become far too heavily skewed towards the wealthiest estates. Some 40% of agricultural property relief benefits the top 7% of estates making claims. The top 2% claim 22% of the relief, which means 37 estates are claiming £119 million in a single—

[John Glen]

The Minister is a serious economist with a serious track record in analysing public finances. With all due respect, given the significant uncertainty and the fact that numerous organisations representing farming interests outside the party political debate have asked serious questions about the deliverability of the scheme and the amount of money that will be raised, surely he must accept that there is time for people such as he to work with officials to find better ways of finding the sums that he says he needs—I am not disputing that—to do the right thing by the farming communities of this country and not cause the unintended damage that will clearly take effect.

[Torsten Bell]

I thank the right hon. Member for his kind words, even though I cannot agree with everything that followed. I will come on to some of the points that he raised shortly. I think this will come up several times in the course of what remains of the debate, but we cannot use farm valuation data to make claims about inheritance tax claims. On the latter, we have the actual data for the claims made, which is what we rely on.

[Several hon. Members rose—]

[Torsten Bell]

I will make some progress and then I will give way.

We see a similar picture for business property relief. It is in large part these reliefs that mean the largest estates pay materially lower rates of inheritance tax than more modest estates. That undermines faith in the fairness of our tax system more generally. Given the pressures we face, it cannot be right to leave this system unreformed, which is a point the hon. Member for Waveney Valley (Adrian Ramsay) made well.

That is the context and the rationale for the changes to how we will target agricultural property relief and business property relief from April 2026. Contrary to the claims that these reliefs are being scrapped, which I am afraid to say were repeated by the hon. Member for Strangford (Jim Shannon) just now, we will continue to provide significant tax relief, including for small farms and businesses. Individuals will still benefit from 100% relief for the first £1 million of combined business and agricultural assets. Importantly, the relief sits on top of all the other spousal exemption and nil-rate bands. Depending on people’s circumstances, up to £3 million can be passed on by a couple to their children or grandchildren free of inheritance tax.

[Jim Shannon]

I will try to be brief. On the rateable value, which the Minister mentioned earlier, my understanding after talking to the legal person of the Ulster Farmers’ Union is that the rateable value is based on whether the farm was handed over in the 1970s, in the 1980s, in the 1990s or even in the 2000s, but the rateable value does not show the real value of the land. Therefore, it is a flawed system. If it is a flawed system, the Minister needs to go back to the very beginning and look at it. I say that respectfully; I am not trying to catch anybody out. I am just saying that if something is not right, then get it right.

[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.

[Helen Morgan]

rose—

[Torsten Bell]

I will make some progress.

In 2026-27, up to 520 estates claiming agricultural property relief, including those that also claim business property relief, are expected to pay more as a result of this change. That means that around three quarters of estates claiming agricultural property relief will not pay any more than they do now.

The hon. Member for Keighley and Ilkley and the right hon. Member for Orkney and Shetland (Mr Carmichael) asked questions about business property relief and specifically about claims that are not covered by agricultural property relief. Around three quarters of estates claiming business property relief alone—that is, the same proportion that have agricultural property relief, once we exclude those only holding alternative investment market or AIM shares, which are often held for the purpose of avoiding inheritance tax—will not pay any more inheritance tax in 2026-27. All estates making claims for these reliefs will continue to receive generous support, at a total cost of £1.1 billion to the Exchequer. The system will remain more generous than it was before 1992, when inheritance tax was applied at a maximum rate of 50%, including on the first £1 million that was passed on.

Several Members have implied that the change will end the passing-down of farms between generations. I gently point out in response that farmers, agricultural landowners and small business owners did not receive 100% relief on inheritance tax for almost all of the 20th century, yet farms and businesses were very much passed down between generations. Indeed, the tax system will continue to support that process. As the Institute of Fiscal Studies has said, our reforms will:

“still leave…land much more lightly taxed than most other assets”.

These changes should also be seen in the wider context of support we are providing for farmers and rural communities. The hon. Member for Aberdeenshire North and Moray East (Seamus Logan) was wrong in his comments about the Office for Budget Responsibility, as the document produced this week provides no new information. However, he was right about the importance of food security, as was the hon. Member for Great Yarmouth (Rupert Lowe). That is why the Budget committed £5 billion to farming over the next two years, including the biggest budget for sustainable food production in our history. It also committed £60 million to help farmers affected by the unprecedented wet weather last winter. The wider tax system will also continue to support farming—tenants as well as owners—including through exemptions from business rates, the use of rebated diesel and the ability, as I said, to average tax affairs over a number of years.

As we have heard today, the reforms to inheritance tax generate strong views. I understand that. I recognise that a small number of estates will have to pay more. I have not hidden from that today, nor in conversations—

[Robbie Moore]

Will the Minister confirm when he and the Government will start listening to the points being made by everybody outside this place—different stakeholders, banks, accountants—

[Robbie Moore]

And supermarkets. The Minister and Government are, dare I say it, alone on this point.

Secondly, as he did not allow my intervention earlier, will the Minister confirm why the Government are not taking into account the value and the size of agricultural units when projecting the impact the changes will have on family farming businesses and farming businesses?

[Torsten Bell]

The hon. Gentleman raises the question of supermarkets. Supermarkets can talk but there is a lot they could do directly to support our farmers—

[Robbie Moore]

You are not listening to the question.

--- Later in debate ---

[Torsten Bell]

I listened to the question and I will make more progress. I have not hidden from what I have heard from individuals across the country about this issue in recent months, including from talking to farmers in mid-Wales and East Anglia. Reform of the reliefs is necessary if we are serious about putting our public finances on a stable footing and repairing our broken public services, including the schools, hospitals and roads that communities across the UK—

[Robbie Moore]

Will the Minister give way?

[Torsten Bell]

No, I am going to finish. Communities across the UK, including in rural areas, rely on those things every single day. We have taken these decisions to make the system fairer and more sustainable and the decisions come alongside significant new investments in farming and support for small business.

Thank you, Mr Stringer, and all those who have spoken today, in particular the hon. Member for Caerfyrddin for securing the debate. I look forward to her concluding remarks.

[Graham Stringer (in the Chair)]

I call Ann Davies.