Here I explain the reality of inheritance tax .
In 2007 I was outside my son’s school when I bumped into a local farmer – at least I thought he was a farmer. I first met him 20 years ago and new him as a farmer in Lincolnshire about eight years older than me when I asked him what he was doing at my son’s school he explained that he now worked for the local authority. He explained that years before I knew him his father had died (pre 1984) and he inherited the farm business that he worked in. He also inherited a sizeable inheritance tax bill which he negotiated to pay over ten years. He realized that he was worse off year on year and stopped farming and got a job.
He was in a situation where running the farm he had to cut back on repairs and renewals. The degradation over the first ten years of him running it combined with increased debt would mean further reinvestment would be required as he got older. What was the point of reinvesting in a farm to be effectively be increasing the amount of acres the Bank effectively has value of at some future point of succession, whether succeeding within his own family or to a future owner buying his farm?
To give this context when I first started work in the late 1980’s I saw base rate peak at over 12%. I saw some farm overdrafts being charged well in excess of 20% and even Agricultural Mortgages around 18%. This was a time of inflation and cost increases. Farmers were on a treadmill, especially arable farmers of increasing yields and productivity against increasing costs. What this meant for this farmer is that whilst he paid his tax each year this was only achieved by increasing bank borrowing and other finance. This was a well-run farm by a competent young farmer of grade 1 land. His family farm was swallowed up by neighbouring larger farmers.
This is a considerable problem in that the change in Inheritance Tax makes investment in a farm or business prone to short term views unless it is owned by a Company quoted on one of the approved exchanges, or a Charity such as The National Trust or one of the County Wildlife Trusts – as these, thanks to the latest budget, are the primary sources of future continuity of ownership free of a wealth tax grab.
If you replace hollow draining (piped drainage underneath the soil) you tend to get a thirty year benefit. A new barn or grain store has multi-generational benefits over many decades. Take a look at Dyson Farms Lincolnshire operation and you see massive investment in energy generation, horticultural production and environmentally friendly farming with an extremely long view. You also see investment in people, jobs, housing etc. All this is done with a long term view of anything up to 100 years. I fear this government is only capable of looking five years ahead.
With a day or two of Rachel Reeve’s budget in November 2024 I had 29 farmers of various types and descriptions contact me and message me. Thirteen of them had cancelled work that they had gotten quotes for as they did not wish to rush into adding value to their business. As to the wisdom of them doing this is for them to judge. I estimate the value of these spends to be £1.2million. I understand why they take this view.
Fiscal policy relies on the chancellor understanding winners and losers. Winners of this policy in the countryside are private equity companies, public companies, and large Charitable organisations such as the National Trust and Environmental/Ecological Charities.
I will examine the social and economic consequence of this to the rural economy in my next post based on what has already been seen in the food processing and distribution industry.
In the meantime we should heed Sir James Dyson’s warning:
“Rachel Reeves is killing off established family businesses, and any incentive to start new ones, with her 20% Family Death Tax, levied each time a family business passes a generation.”
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