Agriculture in Crisis?

The broken economics of British farming.

The Chancellor announced in the Autum budget that the agricultural land inheritance tax exemption would end in April 2026. Landowner sand farmers would be subject to a 20% tax on inheritance. This is half the levy faced by anyone else, but the relief was further extended in measures designed to protect family farms. These measures have been poorly explained by HMRC, and the confusion has been exacerbated by abysmal reporting, even by the BBC.

Relief on inherited agricultural land is set at £1 million per farmer, plus £1 million for their spouse. The farmhouse is exempt if passed on children taking over the farm. The farmer and spouse each have their $35,00 allowance, and there is additional relief bringing the total of £3 million for a couple passing on the farm. Any tax due can be paid over 10 years, at no interest charge. This might seem generous, but the problem is far from simple to understand

Farmland sells for £6,000 to £10,0000 for agricultural use, depending on its potential for income. Some is suitable for arable crops, some only livestock and some a mixture. The average family farm size is debated, but DEFRA have put this at 200 acres. So, for high value land, £2 million value, covered by the relief for a couple. Livestock and equipment or machinery were never exempt, but are within the scope of the third £1 million IH relief. . So, what is the problem? Two things; land value and farm income.

James Dyson bought 36,000 acres of agricultural land. Probably worth £288M. He only made £5M from it last year, but he bought it for the inheritance relief, because it currents has no tax. He, and many like him have driven up the price of land since 1984 to the point where it is not viable to buy it on any scale for a family farming business. 56% of farmland bought in 2023 was sold to landowners who were not working farmers. The revenue per acre is too low to warrant the purchase, unless you are extremely rich and are avoiding inheritance tax.

Take another example. A married farmer with 400 acres of medium revenue potential land. Value £3.2 million. Inheritance tax due on, £1,200,000. Over 10 years, £,24,000 per year. The couple have personal inheritance tax exemption of $325,000 each, plus £175,000 Nil rate if the house is left to a child or grandchild. This could be used towards the overall inheritance tax liability, but equipment, vehicles, livestock and harvested crops are not tax exempt. The situation will vary greatly from farm to farm, but for some, the bill may exceed profit generated by the farm after input costs are met.

The land is hugely overvalued for the income it can generate. So why not just sell it off? Farming is damn hard work and long hours. But it is a vocation. It is in the blood, history. Incomprehensible to most of us, but the passion is undeniable. For full details of the tax changes and range of relief, they can be found is this report from the House of Lords Library.

https://lordslibrary.parliament.uk/budget-2024-inheritance-tax-and-family-farms/?fbclid=IwZXh0bgNhZW0CMTAAAR2Np-zws9dwHYMYc-HKnu7-tABIKLc1eJXIqcJtY-xDKnWXgRvBaoE01gQ_aem__gIdoyCjpbXtWcnP1i5hug#:~:text=From%20April%202026%2C%20inheritance%20tax,over%2010%20years%20interest%20free