Should Inheritance Tax distinguish between the deserving rich and the undeserving rich? A smart farmhouse and a few hundred acres make an attractive investment and a comfortable home. Excellent capital growth offers a comfortable shelter from Inheritance Tax, and annual revenue returns at 2 or 3% pa compare well with other investment opportunities. Add capital growth, and you have the prospect of 7% or more. Own enough rural land and 14% annual return should not be beyond your reach. What’s more you can enjoy all the privilege, status and privacy of a country life.
So why does this very attractive opportunity for the super-wealthy enjoy the protection of its own special relief, Agricultural Property Relief (APR)? As if that’s not enough, if you structure it right anything not covered by APR will be dealt with by Business Property Relief (BPR). APR provides up to 100% relief on the agricultural value of farmland including buildings, cottages and farmhouses. BPR at 100% can go a long way to deal with the rest.
Now imagine a lifetime of toil. Constantly on call to deal with late night calvings, up early again to milk the cows, long hours at harvest time, animal health worries, bovine tuberculosis, badger culls, the mindless bureaucracy of the Common Agricultural Policy, the weather, difficult harvest conditions, world price of grain, constant price and quality pressures from the supermarkets. Land price inflation is all very well, but it’s not cash until you sell up and move on. Meanwhile you have upwards of £10,000 per acre invested in land, stock, machinery and stores, all for an annual income after feed, seed, fertiliser, labour, machinery of no more than £100 to £200. Or if you are a dairy farmer, selling milk for 25p/litre which costs you upwards of 29p/litre to produce.
On the one hand, Agricultural Property Relief looks like a tax relief scandalously open to abuse by the uber-rich. On the other, it can also look like a well-deserved thank-you for unstinting efforts to maintain a domestic food supply.
But both views miss the point of Agricultural Property Relief. The relief recognises that farming is a long-term, low-return, high-capital business vital to national security and self-reliance because we all need to eat and it’s better if our food doesn’t have to travel too far before we eat it. So it is intended to be neither a haven for the wealthy or a thank you to hard working farmers. It is meant to ensure that farm businesses do not have to be disrupted on inheritance by selling off vital assets like land or livestock to pay the tax bill. Otherwise a business earning a return on capital of no more than 2% a year, will take 20 years’ profits to pay the tax bill, and by then it is nearly time for the next generation to die.
We need to rethink Agricultural Property Relief. Instead of looking back, we should look forward. Make the relief conditional, repayable if land or other property is sold within say 30 years without an equivalent replacement. The only point to the relief is to protect capital invested in farming, continually dedicated to feeding a growing population. That way we really could distinguish between the deserving and the undeserving rich.