Inheritance tax changes endanger future of farming, say opposition MPs

The vote took place at the end of an Opposition Day debate on Farming and Inheritance Tax on Wednesday 4 November 2024. The Conservative motion was rejected by 339 votes to 181. A government motion stating that the government is seeking to make the reliefs fairer “whilst also fixing the public services that everyone relies on”, and noting that under the proposed changes around three quarters of claims for agricultural property relief (APR) are expected to not pay more inheritance tax (IHT), was subsequently passed.

A summary of the discussion from the debate can be found below, as well as a short summary of a separate debate that took place simultaneously in Westminster Hall on the Future of Farming.

Opposition Day Debate - Farming and Inheritance Tax

(Full debate Hansard)

The Shadow Secretary of State for Environment, Food and Rural Affairs, Victoria Atkins, opened the debate accusing the government of driving farmers to ‘despair’. She said: “The hike in national insurance, the acceleration of delinked payments, the fertiliser tax, the double cab tax, the stalling of capital grants, the scrapping of the rural services delivery grant and the slowing down of applications to farming schemes are all conspiring against our rural economy and the survival of British farms.”

Atkins said that the Central Association of Agricultural Valuers (CAAV) had analysed the ‘family farm tax’ (as she dubbed the IHT increase) and concluded that it could affect up to 75,000 individual owners of farming businesses. She accused the Chancellor of overlooking a major area of tax policy by ‘forgetting’ to include BPR-only claims in their figures.

Atkins argued that the claim that farmers can transfer £3 million tax-free is incorrect; only a select ‘few’ under specific circumstances can achieve this, she suggested. She explained that this amount is not available to widows, single people, or those owning a farm with relatives.

The shadow minister said a Welsh landowner had told her he needs to sell six tenanted farms to pay the tax. This meant, she said, that six working farming families would lose their businesses, homes, and future farming opportunities for their children. She concluded with a plea: “Labour MPs need to join us and axe the family farm tax.”

The Exchequer Secretary to the Treasury, James Murray, opened for the government. He  acknowledged the contribution that farmers make to the UK economy and food security and argued that the Budget tax increases were necessary as the government had to end “the previous administration’s fiscal irresponsibility.”

Dr Andrew Murrison and Sir John Hayes, Conservative MPs, argued that the government’s impact assessment of 27% of farms being affected contradicted National Farmers Union (NFU) estimates that suggest 75% of farmers would be affected. Murray clarified that there are different sets of data and the NFU’s is related to the total value of farms across the country. He explained that assessing a farm's value alone doesn't reveal its IHT liability; ownership structure, liabilities, and other factors must also be considered.

The Exchequer Secretary told MPs that a form of relief for agricultural property was introduced on estate duty in the Finance Act 1948, with this duty being charged at 55% of the rate that would normally have applied. A new APR and BPR were created in the mid-1970s with the introduction of the capital transfer tax but the rate of relief was only increased to 100% in 1992. “This means that agricultural landowners and farmers did not receive 100% relief for almost all of the 20th century, and yet farms passed down between the generations,” Murray observed.

The minister argued that maintaining a full and unlimited exemption from IHT has become ‘unsustainable’. Data indicates that a very small number of claimants for APR have benefited from a substantial amount of this relief, he said, with 47% of the Exchequer cost of the relief going to the top 7% of claims.

John Glen (Con) intervened to criticise the government for the lack of an impact assessment, arguing that if the goal was to raise revenue from this source, “why were other more effective mechanisms not used, such as business roll-over relief, where a business could be sold in another context and rolled over into buying the land, deferring capital gains tax?” He suggested this would target wealthier individuals not involved in food production.

The minister responded that the government had considered the policy carefully.

In his remarks the Exchequer Secretary highlighted that farmers’ estates will be able to pay IHT in 10 annual, interest-free instalments. However, Glen intervened again to say that near-retirement farmers face particular challenges as 10 years of profits can be consumed by IHT, making it difficult for their farms to be passed on to the next generation. He suggested the government should “look at some mitigations to deal with that reality for so many farmers who are concentrated in that older age group.”

Glen claimed that the policy will decimate family farms unless thresholds are raised or an age limit is introduced. He added, as a former Treasury minister: “The reason I would never have wanted to progress the removal of APR and BPR was that that policy was the product of a technical desktop economist’s view of tax raising. It was not an option when one took into account the reality of what would actually happen to the rural economy and the implications for farming.”

Sir Geoffrey Clifton-Brown (Con), Chair of the Public Accounts Committee, echoing his colleague's comment in relation to the impact assessment, suggested that the discrepancies between Treasury figures and agricultural bodies might be due to land values. He asked the minister to publish an updated impact assessment on how many farms this tax will affect. Murray responded that “a lot of data” has already been published.

The PAC Chair, who declared an interest as a working farmer and chartered surveyor, said that 40% of farmers claim BPR on machinery and livestock, which makes the combined £1 million cap “even more restrictive”. He called on the government to pledge to continue to publish the food security index annually so this tax’s impact on food production and farm sales can be monitored. He also urged the government to engage with farmers to protect them from losing their “life’s work to the taxman”.

Louise Jones (Lab) asked if the minister could confirm that mortgageable value is excluded from IHT calculations. She warned that this could explain discrepancies in the figures, as mortgages may not have been considered. Murray answered that any liabilities “must be netted off against the value of any estate”, factoring in ownership structure, nil-rate bands, spousal transfers, and gifting.

Seamus Logan (SNP) accused the government of targeting small and medium-sized farmers instead of going after tax avoiders. In response, the minister said that their policy balances IHT relief for family farms with the need to address public finances.

Alison Bennett (Lib Dem) suggested that the APR changes undermine sustainable land management efforts by farmers in her Mid Sussex constituency. The minister disagreed, saying that the Minister for Food Security and Rural Affairs would set out more about how the government supports farmers' sustainable land management nationwide.

Tim Farron, Liberal Democrat Spokesperson for Environment, Food and Rural Affairs, considered the change an ‘attack’ on family farms while suggesting that the farming economy was under ‘threat’ under the Conservatives too. He believed that the government’s decision to reduce basic payments by 76% in one year would harm farming more directly than the IHT changes.

Responding to an intervention, Farron said that the government could look at a working farm exemption so that these families would not have to pay IHT. He said: “Who knows, the government might consider putting people who are not active farmers under the HMRC microscope instead. That would be far preferable to what we have.”

Labour MPs, including Jon Pearce, Maya Ellis and Andrew Pakes rejected the Conservative motion and advocated for the change. Ellis believed the measure would increase more opportunities for farmers and offer stability, investment and a “real sense of purpose”. 

Another Labour MP, Sam Rushworth, welcomed the measure but expressed concerns from his constituents regarding the ongoing tax incentive to invest in agricultural land. He enquired if the Treasury could provide a report on its modelling.

Markus Campbell-Savours was the most critical MP on the government benches during the debate. “If today was the real vote, I would vote against the government’s plans”, he told the House, explaining that he had read “what I thought were assurances from my party that we had no plans to introduce changes to APR [and] on that basis… reassured farmers in my constituency that we would not, and now I simply am not prepared to break my word. I am told that there is no Labour MP in the country with as many farms as I have in Penrith and Solway, and I hope my colleagues will understand my feelings on this.” He said that he was reassured that there were “months left to engage with DEFRA and the Treasury and to seek important amendments” on this measure.

The Chair of the Environment, Food and Rural Affairs Committee, Alistair Carmichael (Lib Dem), suggested that the government could have taken a more thoughtful approach by starting with a Green or White Paper to examine inheritance tax, unintended consequences, and land value inflation from tax avoidance. He referenced the Tenant Farmers Association which proposed exempting landlords from IHT if they grant leases over 10 years, benefiting small family farmers.

Esther McVey (Con) noted that Dan Neidle, a “Labour supporting tax expert”, had suggested the Treasury raise the IHT cap to £20 million (though there are other elements to Neidle’s proposal, which she did not mention). She warned that an accountant in her constituency predicts two outcomes: more individuals buying farmland up to £1 million to avoid inheritance tax, which could reduce Treasury revenue and inflate land prices, and the financial industry entering the land market, potentially leading to a loss of farmland for investment.

Another, Conservative MP, George Freeman, said we do not know the aim of the policy. He suggested that average family farms will have to pay tax bills of £400,000, £500,000 or £600,000. He called on Labour MPs to urge the Treasury to adjust the mechanisms and change the thresholds, “unless Labour wants to be the party of rural devastation.”

Callum Anderson (Lab) noted the remarks the previous night of former Conservative Chancellor Lord Clarke that this was “a strange exemption…which is why so many rich people buy agricultural land”. Anderson said that in 2021-22, the top wealthiest 7% of claimants accounted for 40% of APR's value, costing taxpayers £219 million. He emphasised that the government is committed to supporting the industry by offering farmers “a square deal”.

Pete Wishart (SNP) praised the Scottish government’s approach in ensuring that there will be a constant farm payment to farmers in Scotland, arguing that food production is “at the very heart of our farming policy”.

Rachel Gilmour, a former Director of the NFU, now a Lib Dem MP, urged the government to reconsider its policy. She specifically questioned the assumption of 50:50 ownership between spouses, which she believes is often inaccurate. Additionally, she challenged the notion that average family farms are worth less than £3 million.

Amdrew Murrison (Con) blamed the government for targeting the wrong group. He said many MPs “would be perfectly happy for this government… to target those who have, over years, used land to avoid inheritance tax, particularly institutional investors, hedge fund managers and oversea investors, who have artificially put up the price of land in this country, which forces new entrants out of the market and distorts it.” But by “picking on small and medium-sized farms”, “[t]he government are doing the productive sector of our land economy in this country a massive disservice and, frankly, are acting in a way that is unfair and unworthy”.

The Shadow Minister of Environment, Food and Rural Affairs, Robbie Moore, said that Labour had promised farmers that inheritance tax would remain unchanged before the general election. He put a number of questions to the minister including about the absence of an impact assessment and about the government’s estimates. Moore emphasised that the Conservatives ‘back’ British farmers and asked MPs to vote for the motion.

The Minister for Food Security and Rural Affairs, Daniel Zeichner, replied to the debate for the government. He recognised that the debate has cited many figures, but said that only the Treasury’s data, endorsed by the Office of Budget Responsibility, is based on actual claims. This shows about 500 estates a year will be affected.

Zeichner finished the debate by saying that the reforms will not be introduced until April 2026, so people have “plenty of time” to plan for change and to get professional advice.

Westminster Hall Debate – Future of Farming

(Full debate Hansard)

By coincidence, at the same time that MPs in the main Commons chamber were debating the Conservative motion, a debate was taking place in Westminster Hall on the future of farming, which also focused heavily on the IHT changes.

Carla Lockhart (DUP), who secured the debate, started the session by saying the decision to cap full IHT relief at £1 million, with a 20% charge above that, will ‘devastate’ family farms; according to the Department of Agriculture, Environment and Rural Affairs in Northern Ireland, one-third of farms and 75% of dairy farms would be significantly impacted. She warned that: “Farmers face the grim prospect of selling off prime agricultural land, probably to big businesses that certainly do not want to use it for food production”.

Lockhart emphasised that the government must ensure that these measures are “properly researched and justified” and are accompanied by meaningful support for farmers in adopting them.

Dan Aldridge (Lab) said many of his constituents “are dismayed at the idea that tax relief of up to £3 million is not enough. These are finances outside the concept of the vast majority of my constituents.”

Ann Davies (Plaid Cymru) said the Farmers Union of Wales estimates that farms responsible for nearly 90% of Welsh food production could be in scope to pay IHT, under the proposals. “That would be devastating for farmers in Wales, as the average income of different types of farms is much lower than the potential inheritance tax charge. Livestock farms predominate in Wales, making up 70% to 80% of Welsh farm holdings, and inheritance tax bills could be many times the annual income of such farms.”

Richard Tice (Reform UK) said a farmer had told him that he has cancelled a £1 million expansion to his strawberry farm. He continued: “This tax will do the exact opposite of what the government want. There is a very simple solution: to increase the threshold on which it is payable and increase the qualifying period threshold at which people benefit from the tax relief.”

Jim Allister (TUV) said: “I understand that there are people exploiting the market who are interested not in farming, but in tax relief, and own land for that purpose. The government should hit them with all the might they can with the 40% inheritance tax, but exempt the genuine farmers—those who have a farm business number; those who are in receipt of direct payments; those who are genuine, active farmers. If the Government exempted them and went harder after those exploiting the system, they would probably have the same return at the end of it.”

Liberal Democrat spokesperson Lee Dillon said that, while he understood the challenges that the government face due to the black hole left by the previous government, “they do not excuse the recent decisions to impose such harsh tax burdens on vital industries.”

Shadow minister Dr Neil Hudson (Con) wondered: “What possible incentive can there be for sustainable, thoughtful farming or for improving the productivity of a field, flock or herd when, after a farmer has passed, the farm will have to be broken up to pay that unfair inheritance tax?”

Responding to the debate, the Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs, Mary Creagh, repeated the government’s commitment to supporting farmers across the UK, highlighting the £5 billion committed to the farming budget over two years. She praised the government’s new deal for farmers which includes reducing red tape, cutting energy costs, backing British food in public procurement, and introducing a land use framework.

On the Carbon Border Adjustment Mechanism set to begin in 2027, which some MPs had suggested would equate to a ‘fertiliser tax’, the minister said that the Treasury expects it to have a ‘modest’ impact on UK farmers and no significant effect on food prices.