CORPORATES may buy up even more of Scotland’s land as a result of the Labour Government’s new inheritance tax on farmland, it has been warned.
Suicides in an already high-risk industry are predicted to rise as a result of the tax. It is also believed it could weaken the UK’s food security and fuel food inflation.
While there is a common perception that farmers are wealthy, the reality is that many in Scotland are struggling with high costs and low incomes that don’t reflect the high value of their farmland.
It means they will be unable to pay the new inheritance tax from their annual income and farms may have to be sold off, according to industry insiders.
The land could then be snapped up by even more corporate companies with the price of land being driven up even higher, it has been claimed.
“It is possible that large corporations will continue to buy land for the purpose of offsetting carbon from their main business,” said Orkney farmer Paul Ross.
“In many occasions, these buyers will be able to outbid farmers to secure land. They are also more likely to have it set up so this land will never be liable for inheritance tax.
“Even if farmers can manage to scrape the funds together to cover inheritance tax when an owner or partner dies, the investment in improvements or expansion of the business will not be easy due to paying the tax.”
In order to bolster the country’s food security and keep people in rural areas, farms have been exempt from inheritance tax since 1992. The policy also recognised that many farms operate on a large overdraft and produce very little income, with the value of the land only realised when it is sold off.
The last few years have been particularly tough for farming, with supermarkets squeezing farmers to the point where they received just 1p for every block of cheese or loaf of bread sold.
The Labour Government claims the mitigations brought in with the new inheritance tax will mean only wealthy landowners will be eligible but this appears unlikely as the Treasury has decided to combine the previously separate allowances of Business Property Relief (BPR), which covers assets like machinery, with Agricultural Property Relief (APR).
When a combine harvester can cost as much as £750,000, bringing the two together makes farms more likely to be caught in the inheritance tax bracket. With tractors also costing hundreds of thousands of pounds, it is hard to see how even the smallest farms will be exempt.
From April 2026, relief from inheritance tax will be restricted to only the first £1 million of combined BPR and APR. Above this, farmers will pay the tax at a reduced rate of 20% rather than 40% and can be paid over a decade interest-free – but Ross said the £1m threshold was unrealistic.
“The resultant inheritance tax that would have to be paid could lead to the business getting sold or some of the assets realised to pay the inland revenue,” said Ross, who is chair of the Scottish Beef Association.
“The threshold should have been more like £5m, exempting many farms. If the Government pushes this through unchanged, food security will become an issue and result in food inflation.”
If the farm is jointly owned, the threshold rises to £3m but if one partner dies, it returns to £1m.
Farmers can avoid the tax by passing their farms on to their successors but are then not allowed to derive any income from the business and if they die within seven years, then the inheritance tax still applies.
“As agriculture has a poor safety record, there will inevitably be deaths from accidents,” said Ross, adding that unexpected illness and offspring who are too young to take the farm on could be additional complications.
One of the problems with the Labour government’s new rules is that they have been calculated solely on the number of firms that last year claimed APR but not BPR.
Labour’s Farming Minister Daniel Zeichner has now admitted there was a “discrepancy” in the figures on which the Government has based the new tax.
Tom Bradshaw (above), the NFU UK president, commented: “Far from protecting smaller family farms – which is what ministers say they’re doing – they’re actually protecting private houses in the country with a few acres let out for grazing while disproportionately hammering actual, food-producing farms, which are, on paper, much more valuable.
“Even Defra’s own figures show this, which is why they’re so different to the Treasury data this policy is based on.”
Independent assessors agree the threshold should be set much higher in order to target wealthy individuals buying land to avoid paying tax.
An inheritance tax loophole that can exempt homes and estates which are deemed of cultural and historic value should also be closed, according to Guy Shrubsole, author of The Lie Of The Land.
He said more than 350 UK aristocratic estates were using it “to prop up ecologically damaging grouse moors and pheasant shoots”.
“Closing this tax loophole would raise money for public services and give nature a break, too,” he said.
