What’s the beef with farmers’ inheritance tax?

Published

5 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

Trump trade war escalation sparks global market sell-off

Published

1 day ago

April 3, 2025

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Trump trade war escalation sparks global market sell-off

Donald Trump’s trade war escalation has sparked a global sell-off, with US stock markets seeing the biggest declines in a hit to values estimated above $2trn.

Tech and retail shares were among those worst hit when Wall Street opened for business, following on from a flight from risk across both Asia and Europe earlier in the day.

Analysis by the investment platform AJ Bell put the value of the peak losses among major indices at $2.2trn (£1.7trn).

The tech-focused Nasdaq Composite was down 5.8%, the S&P 500 by 4.3% and the Dow Jones Industrial Average by just under 4% at the height of the declines. It left all three on course for their worst one-day losses since at least September 2022 though the sell-off later eased back slightly.

Trump latest: UK considers tariff retaliation

Analysts said the focus in the US was largely on the impact that the expanded tariff regime will have on the domestic economy but also effects on global sales given widespread anger abroad among the more than 180 nations and territories hit by reciprocal tariffs on Mr Trump‘s self-styled “liberation day”.

They are set to take effect next week, with tariffs on all car, steel and aluminium imports already in effect.

Price rises are a certainty in the world’s largest economy as the president’s additional tariffs kick in, with those charges expected to be passed on down supply chains to the end user.

The White House believes its tariffs regime will force employers to build factories and hire workers in the US to escape the charges.

Economists warn the additional costs will add upward pressure to US inflation and potentially choke demand and hiring, ricking a slide towards recession.

Apple was among the biggest losers in cash terms in Thursday’s trading as its shares fell by almost 9%, leaving it on track for its worst daily performance since the start of the COVID pandemic.

Concerns among shareholders were said to include the prospects for US price hikes when its products are shipped to the US from Asia.

Other losers included Tesla, down by almost 6% and Nvidia down by more than 6%.

Many retail stocks including those for Target and Footlocker lost more than 10% of their respective market values.

The European Union is expected to retaliate in a bid to put pressure on the US to back down.

The prospect of a tit-for-tat trade war saw the CAC 40 in France and German DAX fall by more than 3.4% and 3% respectively.

The FTSE 100, which is internationally focused, was 1.6% lower by the close – a three-month low.

Financial stocks were worst hit with Asia-focused Standard Chartered bank enduring the worst fall in percentage terms of 13%, followed closely by its larger rival HSBC.

Among the stocks seeing big declines were those for big energy as oil Brent crude costs fell back by 6% to $70 due to expectations a trade war will hurt demand.

The more domestically relevant FTSE 250 was 2.2% lower.

A weakening dollar saw the pound briefly hit a six-month high against the US currency at $1.32.

There was a rush for safe haven gold earlier in the day as a new record high was struck though it was later trading down.

Sean Sun, portfolio manager at Thornburg Investment Management, said of the state of play: “Markets may actually be underreacting, especially if these rates turn out to be final, given the potential knock-on effects to global consumption and trade.”

He warned there was a big risk of escalation ahead through countermeasures against the US.

Sandra Ebner, senior economist at Union Investment, said: “We assume that the tariffs will not remain in place in the
announced range, but will instead be a starting point for further negotiations.

“Trump has set a maximum demand from which the level of tariffs should decrease”.

She added: “Since the measures would not affect all regions and sectors equally, there will be winners and losers as in 2018 – although the losers are more likely to be in the EU than in North America.

“To protect companies in Europe from the effects of tariffs, the EU should not respond with high counter-tariffs. In any case, their impact in the US is not likely to be significant. It would be more efficient to provide targeted support to EU companies in the form of investment and stimulus.”

Business

British businesses issue warning over ‘deeply troubling’ Trump tariffs

Published

1 day ago

April 3, 2025

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British businesses issue warning over 'deeply troubling' Trump tariffs

British companies and business groups have expressed alarm over President Donald Trump’s 10% tariff on UK goods entering the US – but cautioned against retaliatory measures.

It comes as Business Secretary Jonathan Reynolds launched a consultation with firms on taxes the UK could implement in response to the new levies.

Money blog: Pension top-up deadline days away

A 400-page list of 8,000 US goods that could be targeted by UK tariffs has been published, including items like whiskey and jeans.

On so-called “Liberation Day”, Mr Trump announced UK goods entering the US will be subject to a 10% tax while cars will be slapped with a 25% levy.

The government’s handling of tariff negotiations with the US to date has been praised by representative and industry bodies as being “cool” and “calm” – and they urged ministers to continue that approach by not retaliating.

Business lobby group the CBI (Confederation of British Industry) said: “Retaliation will only add to supply chain disruption, slow down investment, and stoke volatility in prices”.

Industry body the British Retail Consortium (BRC) also cautioned: “Retaliatory tariffs should only be a last resort”.

‘Deeply troubling’

While a major category of exports, in the form of services – like finance and information technology (IT) – has been exempted from the tariffs, the impact on UK business is expected to be significant.

Mr Trump’s announcement was described as “deeply troubling for businesses” by the CBI’s chief executive Rain Newton-Smith.

The Federation of Small Businesses (FSB) also said the tariffs were “a major blow” to small and medium companies (SMEs), as 59% of small UK exporters sell to the US. It called for emergency government aid to help those affected.

“Tariffs will cause untold damage to small businesses trying to trade their way into profit while the domestic economy remains flat,” the FSB’s policy chair Tina McKenzie said. “The fallout will stifle growth” and “hurt opportunities”, she added.

Companies will need to adapt and overcome, the British Export Association said, but added: “Unfortunately adaptation will come at a cost that not all businesses will be able to bear.”

Watch dealer and component seller Darren Townend told Sky News the 10% hit would be “painful” as “people will buy less”.

“I am a fan of Trump, but this is nuts,” he said. “I expect some bad months ahead.”

Industry body Make UK said the 25% tariffs on cars, steel and aluminium would in particular be devastating for UK manufacturing.

Cars hard hit

Carmakers are among the biggest losers from the world trade order reshuffle.

Auto industry body the Society of Motor Manufacturers and Traders (SMMT) said the taxes were “deeply disappointing and potentially damaging measure”.

“These tariff costs cannot be absorbed by manufacturers”, SMMT chief executive Mike Hawes said. “UK producers may have to review output in the face of constrained demand”.

The new taxes on cars took effect on Thursday morning, while the measures impacting car parts are due to come in on 3 May.

Business

Trump trade war: The blunt calculation that should have spared UK from reciprocal tariffs

Published

1 day ago

April 3, 2025

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Trump trade war: The blunt calculation that should have spared UK from reciprocal tariffs

Economists immediately started scratching their heads when Donald Trump raised his tariffs placard in the Rose Garden on Wednesday.

On that list he detailed the rate the US believes it is being charged by each country, along with its response: A reciprocal tariff at half that rate.

So, take China for example. Donald Trump said his team had run the numbers and the world’s second-largest economy was implementing an effective tariff of 67% on US imports. The US is responding with 34%.

Trump latest: UK considers tariff retaliation

How did he come up with that 67%? This is where things get a bit murky. The US claims it studied its trading relationship with individual countries, examining non-tariff barriers as well as tariff barriers. That includes, for example, regulations that make it difficult for US exporters.

However, the actual methodology appears to be far cruder. Instead of responding to individual countries’ trade barriers, Trump is attacking those enjoying large trade surpluses with the US.

A formula released by the US trade representative laid this bare. It took the US’s trade deficit in goods with each country and divided that by imports from that country. That figure was then divided by two.

So, in the case of China, which has a trade surplus of $295bn on total US exports of $438bn, that gives a ratio of 68%. The US divided that by two, giving a reciprocal tariff of 34%.

This is a blunt measure which targets big importers to the US, irrespective of the trade barriers they have erected. This is all part of Donald Trump’s efforts to shrink the country’s deficit – although it’s US consumers who will end up paying the price.

But what about the small number of countries where the US has a trade surplus? Shouldn’t they actually be benefiting from all of this?

That includes the UK, with whom the US has a surplus (by its own calculations) of $12bn. By its own reciprocal tariff formula, the UK should be benefitting from a “negative tariff” of 9%.

Instead, it has been hit by a 10% baseline tariff. Number 10 may be breathing a sigh of relief – the US could, after all, have gone after us for our 20% VAT rate on imports, which it takes issue with – but, by Trump’s own measure, we haven’t got off as lightly as we should have.