Sam Kirkham, a Partner at rural accountancy firm Albert Goodman, has pushed back against Farming Minister, Daniel Zeichner’s, comments that farming is low down on the government’s ‘pecking order’. Kirkham said that, “Rural business is the backbone to a lot of what the Labour party wants to achieve with the environment, with renewables, with the building of houses – that all needs land, and agricultural land will come from farmers and landowners, so engaging with them is important.”
Kirkham was commenting following the release of a report by the Rural Accountancy Group (RAG) reflecting on the wider implications of increased inheritance tax (IHT) on farmers.
Led by southwest-based accountancy firm Albert Goodman, the report comes following Rachel Reeves’ autumn budget, which the Group says effectively introduced a 20 per cent tax charge on businesses and agricultural property values of more than £1m.
The RAG, which comprises 10 accountancy firms representing around 10,000 farming and agricultural businesses across England and Scotland, hopes to demonstrate the real impact on many farm businesses who have planned their succession based on the current measures.
The report also presents alternative solutions, which the RAG claims will have less of an impact on genuine commercial farming while still raising tax and preventing tax avoidance.
Sam Kirkham, a Partner at Albert Goodman and a RAG spokesperson said, “The report demonstrates that as things stand, the proposals are ill thought through and will do little to discourage those investing in land for tax avoidance purposes. Instead, the changes will force hard-working families to change the structures of their businesses to minimise its impact, needlessly disrupting operations and reducing investment in their business.”
Speaking to 8point9 news, Kirkham explained that the actual amount of inheritance tax due would depend on individual circumstances. She said, “In the case of a married couple who’ve got two £1m allowances available (and assuming they own nothing else other than qualifying, relievable BPR and APR assets) then it might be that you could have a farm of up to £4m before there would be any inheritance tax payable – because of the combination of a £2m of allowances, 50 per cent relief, and then potentially the nil rate band and residential nil rate band.
However, Kirkham said, “Once you’re paying inheritance tax, whatever cost the IHT is, it’s unaffordable.
“A six million pound farm between a married couple, they’d be looking at annual instalments of £50,000 a year, and therefore all of the profits would go on paying the inheritance tax they will be left with nothing to live off or to reinvest in the farm.”
Tax avoidance
One of the government’s stated reasons for removing IHT relief for farmers is that it wants to discourage investment in land for tax avoidance.
However, Kirkham said, “I can understand that policy objective and I’m sure a lot of the farming community understands that too but people are very worried that actually it will further encourage investment in land because it’s now out there and marketed that investment in land is a useful way to reduce inheritance tax burden because of the reliefs.”
Kirkham believes that the government should have consulted on the potential impacts of inheritance tax reform before changes were made in the autumn budget. Asked about alternative approaches, Kirkham said, “One of the things that they could look at is a clawback of inheritance tax if land is sold. So, if inheritance tax relief is claimed on death, but land is later sold within a certain time period, then there could be a clawback of that inheritance tax because clearly the land isn’t being retained for producing food.
“You could also lengthen the time it takes to qualify for the inheritance tax reliefs – so at the moment you can buy land and within two years you could qualify the 100 per cent relief from inheritance tax. If that was lengthened to 10 years or more, then most genuine farmers that have carried on farming all of their lives would meet that 10 year period, whereas those that are investing in land might think twice if it’s going to take longer for them to qualify for relief, particularly given the low returns that you’re going to get on the land in the meantime.”
Easing succession
The government has also said that it aims to ease farm succession and increase the supply of land.
Kirkham said, “Again I think that’s a good policy objective to try and encourage land to be passed on earlier. I think the tax system has encouraged land owners to hold onto land longer than perhaps all of them should do. But it’s not just because of tax, there’s a whole load of other complex reasons why land is held for longer in [a farmer’s] lifetime. The measures will encourage the passing on the land earlier – but to enable that to happen they need to look at the wider tax system as well because there’s a cost to handing on land that creates a tax point at the time of gift. Also, given that we all know that the profitability in the returns on farmland are so much lower than in any other business, how does the person retiring afford to carry on living if they pass their livelihood on, because it’s not always possible to fund a retirement through pensions in farming.”
Low down the ‘pecking order’
Asked finally to reflect on recently reported comments by Farming Minister, Daniel Zeichner, that farming is low down on the government’s ‘pecking order’, Kirkham said, “Given the last six months it’s not a surprise – I suppose it’s a very honest statement, but clearly incredibly disappointing.
“I think the rural business is the backbone to a lot of what the Labour party wants to achieve with the environment, with renewables, with the building of houses – that all needs land, and agricultural land will come from farmers and land owners, so engaging with them is important. Also, we want an economy that’s growing, and a big part of our economy is agriculture. I just feel it’s very blinkered that it’s not a priority for them.”
Watch our interview with Sam Kirkham on 8point9 here
Read the full report, The Real Impact of the 2024 Autumn Budget IHT Announcements