No tax change is perfect. Systems can never be customised to take in every set of circumstances. There are always edge cases – people who are outliers in the groups that new measures are aimed at. Several hundred farming families seem likely to fall into this category, following the changes to inheritance tax in Rachel Reeves’s budget that have prompted this week’s angry protests. Those whose incomes will make it difficult for them to pay the new 20% rate on agricultural property above a £1m threshold may need to sell land, or adapt their businesses in other ways.
Given that farms were previously exempt, it is not surprising that this has caused upset. Very few people want to pay more tax – especially on family-owned assets to which they are attached. There is a reasonable argument that more notice should have been given of the government’s plans, which were not in its manifesto. Had a consultation taken place it is possible that the £1m threshold might have been set higher, given the average size of a farm.
Once business property relief changes (on assets apart from land) are factored in, it may be that more farmers are affected than the Treasury expects. This is concerning and should be examined. But couples can hand on £500,000 each to their children, in addition to agricultural holdings, meaning that the total value of a tax-free inheritance could be £2m or even £3m.
Tax rises were unavoidable given the desperate state of public services. There was no good reason why agricultural businesses should continue to be untaxed. On the contrary, the increasing use of land as a way for wealthy people to avoid taxes needed to be addressed. A more targeted tax would have been tapered to take more from bigger, wealthier landowners. A more progressive budget could have incorporated this among other wealth taxes.
While hardworking farmers are rightly respected by the public, their situation must not be allowed to mask the fact that the main beneficiaries of the existing regime are a highly privileged group. Between 2018 and 2020, nearly £600m in inheritance tax relief went to about 200 estates with an average value of £6m. Each claimed more than £1m in relief. Even once the changes are brought in, agricultural land will be taxed at 20% – half the rate of other assets.
But the Tories’ fiscal legacy is, as ever, only part of the story. And if ministers did not realise the political danger before this week, of introducing changes such as these without warning, they must do now. Across Europe, farmers are a key constituency in the reaction against net zero and other green policies that are portrayed by populist rightwing parties as the projects of an urban elite. In France and the Netherlands, among other countries, a large section of rural opinion has been harnessed by the far right.
To avoid something similar from happening here Labour must show that it can listen to farmers, not only on inheritance tax but also on the food system and other issues. They are not the party’s natural constituency. But its newly elected rural MPs have a vital role to play in bridging the fissures in our volatile political landscape. The impact of the new taxes must be scrutinised. And the opportunists who offer bitterness but no meaningful alternatives must be challenged.
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