Inheritance Tax Relief: Farms

Wendy Chamberlain Excerpts

Monday 10th February 2025 Westminster Hall

[Wendy Chamberlain (North East Fife) (LD)]

It is a pleasure to serve under your chairmanship, Dr Murrison.

Today, farmers are descending on Whitehall for the third time in as many months. All Members present here, I suspect, know that the Government’s proposals to change APR—and BPR, which we must not forget—have been an exercise in failure: a failure in political judgment and in communication. Based on the latest OBR analysis, they will not even achieve their policy outcomes.

A number of Members have suggested different ways of mitigating this impact, but I point out that there was a report about the half a billion in additional costs to HMRC spent on recouping tax. Funnily enough, that is the same as the £500 million that it is estimated this policy will bring into the Treasury, so perhaps we need fewer loopholes, simpler tax and a way to help working people in this country.

I want to raise an issue mentioned by a number of Members, including the Chair of the Select Committee, my right hon. Friend the Member for Orkney and Shetland (Mr Carmichael), about agricultural tenancies and their impact particularly in Scotland. Agricultural tenancies have an inheritable value; there are circumstances in which a tenancy can be passed on via a will, the rules of intestacy or, in some conditions, as a lifetime gift. It is not purely a Scottish occurrence, but it is many times more common in Scotland, because of the Agricultural Holdings (Scotland) Act 1991. Any tenancy to which that law applies can be passed on by the tenant as part of their estate.

The tenancy is valued per acre according to the difference between market rates and the actual rent, because these tenancies have much lower, preferential rates. According to the CAAV— I know it has written to the Chancellor about this, and I am grateful for its explanation—that means the average value of lowland arable land, for example, would be £3,000 to £4,000 per acre. Therefore, a tenancy of 300 acres breaches the APR threshold and starts paying APR—and that is before taking into account the value of machinery.

Although we have heard broad concerns about the future of farms if they are forced to sell land piecemeal, that just is not an option available to tenant farmers. This is complicated and technical, but I think the Government just have not thought about the impact on Scottish tenant farmers. I have raised this four times in the last three months, both at Scotland Office questions and in the urgent question that the Minister replied to a couple of weeks ago, and I got platitudes. I do not think they have looked at this at all.

I am conscious of the perception that farmers are wealthy. We have made it clear today that this debate is about people who have cash held in their land, but cannot release that without selling it. A constituent I spoke to last week is a farmer, previously a tenant farmer; she bought her farm eight years ago with her family, under a mortgage, and is now transitioning from working tax credits to universal credit. We need to deal with that myth, and I urge the Government to pause this policy.

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[Sarah Dyke (Glastonbury and Somerton) (LD)]

It is a pleasure to serve under your chairmanship, Dr Murrison, and to speak on behalf of the Liberal Democrats on this incredibly important issue. I thank all right hon. and hon. Members for their contributions, which highlight clearly the strength of feeling from around the country. I also thank the people who signed the petition, especially the 520 from Glastonbury and Somerton.

As has been well rehearsed, British agriculture is staring over a cliff edge. It has suffered from an almost never-ending list of difficulties over recent years: Brexit, energy prices, the war in Ukraine, the terrible Tory trade deals and a botched transition from BPS to ELMs. Against that background, the Government’s decision to implement changes to APR and BPR has rightly drawn criticism and anger from across the sector. The Liberal Democrats are deeply concerned about the impact that the family farming tax will have on farmers and rural communities right across the country.

I am in constant dialogue with farmers from across Glastonbury and Somerton. A consistent message from many is that this decision will inevitably lead to many family farms closing their gates for the very last time over the next few years. Just this weekend, I met a farmer’s son, who is in his 40s, on his family farm in Low Ham. He explained that he hoped to move away from his career as a civil engineer and go back to the farm full time, keeping the beef suckler herd at the heart of the business but introducing diversification projects to maintain a baseload of income for when agricultural markets fluctuate. He told me that the changes to IHT

“will be the end of any chances we have of keeping our farm going. I feel totally demoralised.”

[Wendy Chamberlain]

My hon. Friend is outlining the impact of this policy. The example that she gave about her constituent reminds us that there is a multigenerational element to farming, and families often live together. The Government have said that farmers should consider tax planning, but one challenge with tax planning is that a donor cannot keep any benefit from a gift. Do we think the Government intend to suggest that older parent farmers who tax plan need to move off the farm?

[Sarah Dyke]

I thank my hon. Friend for a very well made point, and farming is indeed often multigenerational. This is putting huge stress on farming families. I myself am from a farming family. My mother is 81, and my father died about a year ago. The pressure that it is putting on her to think about whether she can survive another seven years is so distressing, and I know that she is not alone.

--- Later in debate ---

[James Murray]

I have only a few minutes left, so I will not.

I have also participated in several meetings with farming bodies since the autumn Budget 2024, and I am meeting farming bodies again shortly to discuss their concerns further. At the same time, it is important to recognise that other organisations have called for the reliefs to be abolished or restricted. Commentators have highlighted that the reliefs currently contribute to an inheritance tax system that means that the very largest estates pay lower effective tax rates than smaller estates. As the Institute for Fiscal Studies has set out since the Budget, the changes we announced will still leave farmland much more lightly taxed than other assets.

I want to address as many of the points that Members made during the debate as possible, but it is worth saying first that it is important to see the changes in the context of wider support for farmers and the rural community. The Budget committed £5 billion to farming over the next two years, including the biggest budget for sustainable food production in our history. It committed £60 million to help farmers affected by the unprecedented wet weather last year, and we are protecting farms and rural businesses by committing £2.4 billion over the next two years to rebuild crumbling flood defences.

We will also continue to provide existing support for the farming industry in the wider tax system. That includes, for example, the exemption from business rates for agricultural land and buildings, and the ongoing entitlement for vehicles and machinery used in agriculture to use red diesel, as the hon. Member for Dumfries and Galloway (John Cooper) mentioned.

On the point made by the right hon. Member for Orkney and Shetland (Mr Carmichael) about the inheritance tax treatment of Scottish agricultural leases, the Government are aware of the issue and officials have already discussed it with their counterparts in the Scottish Government. There is an existing provision in the Inheritance Tax Act 1984 that deals explicitly with the Scottish agricultural leases. Section 177 of the Inheritance Tax Act means that Scottish agricultural leases passed down on death are not included in the value of the estate.

[Wendy Chamberlain]

On that point, will the Minister give way?

[James Murray]

I have only a few moments, so I will not.

My hon. Friend the Member for North Northumberland (David Smith) asked about introducing a working farmer test. I draw his attention to the fact that a test where relief was provided only if, among other things, the individual received 75% of their income from agriculture did exist in the UK for a short period, between 1975 and 1981. It was removed, however, because of concerns about its impact on the availability of land for tenant farming.

Finally, I will address an issue raised by a number of Members, including the hon. Members for North Cornwall (Ben Maguire) and for Chester South and Eddisbury (Aphra Brandreth), about mental health among the farming community. The Government are committed to supporting farmers and agricultural workers in accessing the support they need to protect their mental health. DEFRA already works with a range of farming charities including the Royal Agricultural Benevolent Institution and Yellow Wellies, which was mentioned by the Liberal Democrat spokesperson. Those organisations have highlighted the mental health challenges for farming communities more generally.

To conclude, as we have heard, the reforms to inheritance tax generate strong views, and I understand that. I recognise that a small number of estates will have to pay more tax, but the reform of the reliefs is necessary given the fiscal challenge that confronts us and the fact that the bulk of the cost of the reliefs had become skewed towards the wealthiest estates. We must put our public finances back on a stable footing and repair our broken public services. We are doing so in a way that involves tough decisions but is as fair as possible and preserves significant relief from inheritance tax for small farms and businesses.