“The announcement in the UK budget on the 30th October 2024 of an increase in employers’ National Insurance, an acceleration in the rate of withdrawal of direct payments from farms (even though the original intention had been to present farmers with a clear roadmap and timetable so they could plan and adjust) and, notably, a proposal to introduce a new £1m threshold for 100% relief of inheritance tax (IHT) represent a new set of challenges in a sector beset by challenges, many of which are beyond the control of individual farmers. However, it is the announcement on IHT that has sent shockwaves reverberating around the farming community and lead to pronouncements of the ‘end of family farming’. Indeed, it is almost inevitable that the fear and despair being spread amongst a community with already high levels of stress, anxiety and depression will lead to some tragic outcomes for individuals and their families. To borrow a phrase from the President of the US, “we need to bring down the temperature on this”. We need calm, sober debate and discussion amongst all concerned.
“As ever, the devil is in the detail and, as yet, we don’t know the detail. For sure, the proposed £1m threshold seems low and the data presented by the government regarding the number of agricultural estates that would attract IHT doesn’t accord with the popular rule of thumb of £10,000 per acre for land on the open market, raising issues of confidence in the data. Of course, averages can be misleading. As evidence of the impact of the proposal, presenting data for more than just one year would have been helpful. Whatever threshold is finally settled on it will be important that it is regularly reviewed and revised in order to avoid the equivalent of the ‘fiscal drag’ created by freezing income tax bands.
“While commentators on various sides of the debate trade statistics regarding the percentage of farms that may be impacted by the current IHT proposal, I have a statistic that, like it or not, unites us all. I am 100% confident that 100% of us will die, not in the next couple of years, 5, 10 or even 20 years, but at some point it will happen. This means that there is time to plan. In the short term however, there should be some transitional support for elderly farmers who are of an age where they may not live long enough to make lifetime gifts at zero IHT (although capital gains tax may apply) and even if they could take out life insurance, at their age the premiums would be prohibitively costly. If this is to be a transition, it must be a just transition.
“In the longer term IHT liability will be factored into the costs of doing business. And it is a business. It is a Farm Family Business. To the extent that this will encourage more and earlier succession planning it can only be a good thing. Part of the reason for the seemingly ever-increasing average age of a farmer (strictly speaking the average age of the registered holder) is the current tax regime. So, changes to IHT may bring down the average age of a famer. It is possible, in the short term at least, that such will be the focus on the most tax efficient transfer of ownership that other vital aspects of succession will be given insufficient attention. In order to set your successor up for success you must also delegate and devolve decision making and business leadership. Succession is a process not an event. It doesn’t just happen. It needs to be planned for. Advisors will provide advice on tax liability and financial service providers will no doubt bring new products to the market. There is a financial and emotional cost to succession planning. Succession after all, is an investment in the future of the business and future of the family.
“Many farmers will respond that they may be asset rich (so-called ‘paper millionaires’) but they are often cash poor and cannot afford life insurance premiums for instance, although again, the earlier you start (all other things being equal) the cheaper the premiums. That doesn’t mean that an additional cost is necessarily affordable to all farmers, which of course leads to a consideration of the price of food and the small part of that price that farmers receive. It is often said that food prices need to raise to better reflect the ‘true cost’ of food. Maybe they do but what about the millions of people living in the UK whose poverty already means that they experience food insecurity, and remember, many of these are children. So far this has been put securely in the box marked ‘too difficult to handle’ but if we are asking our farmers to rise to a new challenge maybe we should also address this societal challenge.
“Most farms across the world are family farms. Family farms come in all shapes and sizes, from the small to some of the very largest farming businesses. It is not the size that matters but the ‘familyness’. It is a business model that has proved remarkably resilient. Resilience isn’t about being unyielding (that is resistance); resilience is about adapting to changing and changed circumstances. Family farms have been doing that for generations and will continue to do so. As ever, it is premature to predict the death of the family farm.”
