Press reports suggest that Inheritance Tax only hits people on their death and has no lifetime implications. How wrong they are. When I started work in 1973, I lodged for some months with a local farm. The farmer had cancer and was dying.
His family were concerned about paying death duties, but they had invested in a life insurance policy which would pay the duty. The monthly premiums payable for this policy had been huge.
At that time. farming was a highly profitable business, and farmers were highly respected. Memories of wartime rationing were strong, and it was still national policy to make Britain self-sufficient in terms of food production.
Post-war farm incomes had been protected by policies such as the compulsory school milk and the purchase of milk through the milk marketing board. Most farmers could afford to send their children to fee paying schools and I can recall how keen they were to leave school to help their dads on the farm at age 16.
I used to envy how they were allowed to drive tractors off-road in their early teens and go on holidays abroad before package holidays were invented. In those Halcyon days, nobody ever did know a poor farmer.
Times changed. Compulsory school milk was abolished. The marketing of milk was de-regulated in 1993, leading to the end of the Milk Marketing Board.
Superstores got control of UK food retail and ruthlessly drove down farm prices and farms had to compete with cheap imported food from abroad which does not comply with UK statutory standards.
The UK left the EU, and the new subsidies are less than those granted by the EU. There has been an almighty increase in the cost of equipment which most farms cannot afford to buy and therefore have to rely on contractors to harvest their crops. It was against this kind of background that the then government exempted farmers from Inheritance Tax in 1984.
According to national statistics, in 1973 UK farm business income (i.e. net profit) was almost 10 billion pounds. Since then, farm business income (FBI) has reduced to less than five billion pounds.
This is in spite of a reduction in workforce numbers from about 900,000 to 200,000 and an increase in productivity of more than 50%.
According to The Departmentfor Environment Food and Rural Affairs (DEFRA), annual FBI for the average cereal farmer is now £34,000; for the average dairy farm it is £50,000 and for the average mixed farm it is £37,000.
The National Farmers Union (NFU) say 17% of UK farms make no profit at all while just over a third have annual farm business income of less than £20,000. As most farms are worked by farmer, wife and their children, FBI has to support all of them. So, if you don’t know a poor farmer, they certainly do exist now.
As regards capital assets, the value of agricultural land has increased from £200 per acre in the 1960’s to £2,400 per acre in the 1990’s and, according to current reports, to more than £10,000 per acre now. When one adds the value of the farmhouse and equipment, it’s clear why farms are often described as asset rich but cash poor.
The NFU has produced figures to explain how the new tax proposals will work. So, for example, a small farm of 150 acres with a farmhouse is likely to produce an estate of £1.95 M.
After deduction of Agricultural Property Relief at its new rate and Business Property Relief, £450,000 will be liable to tax, and tax at 20% would be £90,000.
It may be possible to reduce tax liability by restructuring the business and putting it into joint names, but even so, a 300 acre farm with farmhouse, when restructured could produce a taxable estate of £650,000 and a tax liability of £130,000.
Over 10 years, this would be £13,000 annually or £1083 monthly – a lot for a farm with an annual FBI of £37,000
The alternatives: land sales; mortgage or insurance. A land sale could weaken the business, and mortgages are not cheap.
As regards insurance, the premium would depend on the age of the farmer and the amount insured and could be upwards of £500 monthly. If this is deducted from the farm’s FBI, it is easy to understand why farmers are so angry.
We can do without televisions, computers, mobile phones and many other things, but the one thing we cannot do without is food.
We have a dedicated workforce of farmers who have been brought up on the land and know their business.
We cannot afford to lose their experience. We need to give farmers and their families every incentive to carry on and pass their experience and businesses down to future generations.
