What’s the beef with farmers’ inheritance tax?

Published

2 months ago

November 19, 2024

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Farmers have left the fields for the streets of the capital in protest at changes to inheritance tax that will see death duties payable by some farmers on agricultural and business property.

The Treasury estimates the changes, revealed in the budget, will raise up to £520m a year. Farmers and campaigners say they threaten the future of thousands of multi-generational family farms.

Here, we take a look at the issues involved to explain why farmers are angry.

What is inheritance tax?

Inheritance tax (IHT) is ordinarily payable on estates at 40%. Estates passed to a surviving spouse or civil partner, charity or community sports club are exempt, and there are reliefs on property passed to children, relatives and others.

Estates worth less than £325,000 are not taxed, with a further £175,000 of relief given if a home is left to children or grandchildren, giving a total of £500,000 tax free. Currently around 4% of estates are liable for IHT.

What are the plans for inheritance tax on farmers?

Since 1984 farmers and agricultural land and business owners have been exempt from IHT, thanks to a series of tax “reliefs” that can be applied to estates.

There are two broad categories, both offering 100% relief. Agricultural Property Relief (APR), covers land and farm buildings, and Business Property Relief (BPR) applies to livestock, machinery such as tractors and combine harvesters, and assets developed to diversify income, such as cottages converted to short-term lets, or farm shops.

From 2026 those 100% reliefs will end, replaced by limited relief for farmers on more generous terms than general IHT.

Estates will receive relief of £1m, with up to £500,000 of additional relief, as with non-farming estates. If a farm is jointly-owned by a couple in a marriage or civil partnership, the relief doubles from £1.5m to £3m.

Any tax owed beyond the level of relief will be charged at 20%, half the standard 40%. If farms are gifted to family members at least seven years before death no IHT is payable.

Why is the government acting?

Those generous reliefs have made agriculture an attractive investment for those seeking to shelter wealth from the taxman. Jeremy Clarkson, the UK’s highest profile farmer – and opponent of the government’s plans – said as much when promoting his Amazon series about becoming the proprietor of Diddly Squat Farm in Oxfordshire.

“Land is a better investment than any bank can offer. The government doesn’t get any of my money when I die. And the price of the food that I grow can only go up,” he told the Times.

Mr Clarkson is far from alone. Private and institutional investors, along with so-called “lifestyle” farmers funding purchases from previous careers, like the former Top Gear presenter and his Oxfordshire neighbour, the Blur bassist Alex James, now dominate agricultural land purchases.

Figures from land agents Strutt & Parker show those three categories made up more than half of all agricultural land purchases in England last year, with just 47% bought by traditional farmers.

In the first three quarters of this year the figure is down to 31%, fewer than the 35% of purchases made by private investors. (Strutt & Parker stress that less than 1% of land changes hands every year and the majority remains in the hands of farmers and traditional landowners.)

The most valuable estates also receive the lion’s share of tax relief. Analysis by the Resolution Foundation shows 6% of estates worth more than £2.5m claimed 35% of APR, and 4% of the most valuable accounted for 53% of BPR in 2020.

In the budget the Treasury said “it is not fair or sustainable for a very small number of claimants each year to claim such a significant amount of relief”.

How many farms does the government say will be affected?

The government says around a quarter of farms will be impacted by the changes, based on the annual tally of claims for Agricultural Property Relief and Business Property Relief made in the event of a farm owners’ death.

The latest figures for APR, for 2021-22, show that for estates worth more than £1m and therefore potentially exposed to the new regime, there were 462 claims, 27% of the total.

More than 340 claims were in the £1m-£2.5m band, with 37 claims from estates claiming more than £5m of relief, at an average of £6.35m.

For Business Property Relief, which also includes shares held on unlisted markets including the London AIM market, there were 552 claims for more than £1m, or 13% of the total, with 63 claims worth more than £5m in relief, at an average value of £8m.

While ministers insist smaller farms will be protected, the merging of APR and BPR seems certain to increase the value of estates for IHT purposes. New tractors and combine harvesters are six-figure investments, and farmers say rising land values mean the reliefs are less generous than the government maintains.

What do farmers say?

Farmers and campaigners say the government’s figures are far too low. The Country Landowners Association estimates 70,000 farms could be affected, a figure reached by multiplying average arable land value by the average farm size that they conceded should be treated with caution.

The National Farmers’ Union points to figures from the Department for Environment, Farming and Rural Affairs, which show 49% of farms in England had a net value of more than £1.5m. On that basis almost 50,000 farm owners may need to consult an accountant.

The NFU’s central point is that the economics of farming mean levying inheritance tax could be ruinous for many. While farmers and agricultural landowners are asset rich, courtesy of their land, property and equipment, they are cash poor.

Average income in every category of cropping farms declined in 2023, with cereals revenue falling by 200% year-on-year, and average earnings across the board of less than £50,000.

For farms with meagre incomes facing hefty IHT bills and no tax planning, land sales may be the only option. That could be terminal for some family dynasties, but it would make IHT the final straw, rather than the root cause in an industry that, for far too many farmers, simply does not pay.

Business

Asda-owner TDR snaps up former SPAC merger target CorpAcq

Published

12 hours ago

January 19, 2025

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Asda-owner TDR snaps up former SPAC merger target CorpAcq

The private equity owner of Asda has struck a deal to buy a controlling stake in a group which specialises in backing British SMEs.

Sky News has learnt that TDR Capital has agreed to acquire a majority interest in CorpAcq, less than six months after the so-called ‘corporate compounder’ aborted a deal to list in the US.

City sources said this weekend that CorpAcq, which makes roughly £125m in annual profit, was being valued at well over £1bn on an enterprise value basis in the deal with TDR.

Founded in 2006, CorpAcq – which sponsors Sale FC Rugby’s stadium, near its Altrincham base – has amassed a portfolio of more than 40 companies.

It specialises in buy-and-build strategies, with a focus on companies operating in the industrial products and services sectors.

The company’s acquisition blueprint enables SME founders to retain management control while gaining a long-term investment partner offering operational support to those businesses.

CorpAcq’s founder is Simon Orange, brother of the former Take That member Jason and joint-owner of the Sale Sharks.

In 2023, a special purpose acquisition company (SPAC) founded by Michael Klein, one of Wall Street’s leading financiers, announced a $1.5bn plan to take CorpAcq public.

The merger was called off in August last year, with Mr Klein’s vehicle Churchill Capital VII citing difficult IPO market conditions.

Banking sources said that TDR and CorpAcq had entered discussions well after the SPAC deal was abandoned.

The deal, which could be announced within weeks, is the latest to be struck by TDR, which also counts the pubs giant Stonegate and David Lloyd Leisure among its portfolio of investments.

A spokesman for TDR declined to comment.

Business

Poundland owner drafts in advisers amid discounter crisis

Published

2 days ago

January 18, 2025

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Poundland owner drafts in advisers amid discounter crisis

The owner of Poundland, one of Britain’s biggest discount retailers, has drafted in City advisers to explore radical options for arresting the growing crisis at the chain.

Sky News has learnt that Pepco Group, which has owned Poundland since 2016, has hired consultants from AlixPartners to address a sales slump which has raised questions over its future ownership.

City sources said this weekend that the crisis would prompt Pepco to explore more fundamental for Poundland, including a formal restructuring process that could prompt significant store closures, or even an attempt to sell the business.

AlixPartners is understood to have been formally engaged last week, with options including a company voluntary arrangement or restructuring plan said to have been floated by a range of advisers on a highly preliminary basis.

Sources close to the group said no decisions had been taken, and that the immediate focus was on improving Poundland’s cash performance and reviving the chain’s customer proposition.

A sale process was not under way, they added.

Poundland trades from 825 stores across the UK, competing with the likes of Home Bargains, B&M and Poundstretcher, as well as Britain’s major supermarket chains.

Last year, the British discounter recorded roughly €2bn of sales.

It employs roughly 18,000 people.

Earlier this week, Pepco Group, the Warsaw-listed retail giant which also trades as Pepco and Dealz in Europe, said Poundland had seen a like-for-like sales slump of 7.3% during the Christmas trading period.

In its trading statement, Pepco said that Poundland had suffered “a more difficult sales environment and consumer backdrop in the UK, alongside margin pressure and an increasingly higher operating cost environment”.

“We expect that the toughest comparative quarter for Poundland is now behind us – the same quarter last year represented a period prior to the changes made within our clothing and GM [general merchandise] ranges – and therefore, we expect the negative sales performance for Poundland to moderate as we move through the year.”

It added that Poundland would not increase the size of its store portfolio on a net basis during the course of this year.

“We are continuing a comprehensive assessment of Poundland to recover trading and get the business back to its core strengths, including undertaking a thorough assessment of all costs across the business, as well as evaluating its overall competitive positioning,” it added.

The appointment of AlixPartners came several weeks after Stephan Borchert, the Pepco Group chief executive, said he would consider “every strategic option” for reviving Poundland’s performance.

He is expected to set out formal plans for the future of Poundland, along with the rest of the group, at a capital markets day in Poland on 6 March.

Among the measures the company has already taken to halt the chain’s declining performance have been to increase the range of FMCG and general merchandise products sold at its traditional £1 price-point.

Poundland’s crisis contrasts with the health of the rest of the group, with Pepco and Dealz both showing strong sales growth.

A spokesman for Pepco Group, which has a market capitalisation equivalent to about £1.7bn, declined to comment further on the appointment of advisers

AlixPartners also declined to comment.

Business

FTSE 100 closes at record high

Published

2 days ago

January 17, 2025

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The UK’s benchmark stock index has reached another record high.

The FTSE 100 index of most valuable companies on the London Stock Exchange closed at 8,505.69, breaking the record set last May.

It had already broken its intraday high at 8532.58 on Friday afternoon, meaning it reached a high not seen before during trading hours.

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The weakened pound has boosted many of the 100 companies forming the top-flight index.

Why is this happening?

Most are not based in the UK, so a less valuable pound means their sterling-priced shares are cheaper to buy for people using other currencies, typically US dollars.

This makes the shares better value, prompting more to be bought. This greater demand has brought up the prices and the FTSE 100.

The pound has been hovering below $1.22 for much of Friday. It’s steadily fallen from being worth $1.34 in late September.

Also spurring the new record are market expectations for more interest rate cuts in 2025, something which would make borrowing cheaper and likely kickstart spending.

What is the FTSE 100?

The index is made up of many mining and international oil and gas companies, as well as household name UK banks and supermarkets.

Familiar to a UK audience are lenders such as Barclays, Natwest, HSBC and Lloyds and supermarket chains Tesco, Marks & Spencer and Sainsbury’s.

Other well-known names include Rolls-Royce, Unilever, easyJet, BT Group and Next.

FTSE stands for Financial Times Stock Exchange.

If a company’s share price drops significantly it can slip outside of the FTSE 100 and into the larger and more UK-based FTSE 250 index.

The inverse works for the FTSE 250 companies, the 101st to 250th most valuable firms on the London Stock Exchange. If their share price rises significantly they could move into the FTSE 100.

A good close for markets

It’s a good end of the week for markets, entirely reversing the rise in borrowing costs that plagued Chancellor Rachel Reeves for the past ten days.

Fears of long-lasting high borrowing costs drove speculation she would have to cut spending to meet self-imposed fiscal rules to balance the budget and bring down debt by 2030.

Long-term government borrowing had reached a high not seen since 1998 while the benchmark 10-year cost of government borrowing, as measured by 10-year gilt yields, was at levels last seen around the 2008 financial crisis.

The gilt yield is effectively the interest rate investors demand to lend money to the UK government.

Only the pound has yet to recover the losses incurred during the market turbulence. Without that dropped price, however, the FTSE 100 record may not have happened.

Also acting to reduce sterling value is the chance of more interest rates. Currencies tend to weaken when interest rates are cut.