As farmers head to Westminster to protest at Budget measures affecting their businesses, including the unwelcome changes to inheritance tax, we look at the practical implications of the new regime for our new Arable Insights farmer panel.

See also: Soil health pivotal for new Arable Insights farmers

South Midlands: Charles Paynter

Changes to agriculture property relief (APR) and business property relief (BPR) in the recent Budget are exactly what most ordinary farmers and their businesses don’t need.

On top of a difficult year creating disruption, the loss of the Basic Payment Scheme (BPS), high costs and poor yields, says Bedfordshire farmer Charles Paynter.

Charles is a third-generation farmer and land originally rented by his grandfather was bought through hard work and diligence.

“This is the basis of our land wealth,” Charles says.

“In common with most other farmers, we have been passing this farm business asset down from generation to generation and only ever drawing a living from it.”

He adds: “There is no thought to cashing it in to line our own pockets as we would be destroying our livelihood.

“It is valuable not because of its monetary value, but because of the potential to provide a worthwhile living for successive generations of the family.”

At 221ha, the farm isn’t particularly large, but Charles expects to be above the £1m joint APR/BPR threshold, albeit with a number of complications that will determine actual liability.

Ironically, the business had recently concluded a comprehensive overhaul of the farm’s ownership.

This included paying a big chunk of backdated inheritance tax (IHT) and trust costs, dissolving a trust, employing legal work to look at a tenancy and having assets revalued.

“All necessary changes were carried out on the assumption that APR would remain at 100%.

“It cost a considerable amount of money, absorbing most of the money we had retained in the business as working capital to replace machinery, etc,” he says.

“Now after the Budget surprise, for the sake of future generations, we are going to spend more revisiting the subject.”

Currently, he is unsure what options might be available, adding to concerns from unreliable yields, extreme weather events, low profitability and skyrocketing inflationary effects.

“It just adds further to financial pressures, exacerbated by the accelerated reduction of the Basic Payment Scheme,” he says.

“It’s a perfect storm of bad news for ordinary farmers, and it is difficult to believe there aren’t going to be unintended consequences.”

South West: John Farrington

Initial estimates are suggesting that without any changes to current plans or policy, an IHT bill would be triggered at Fry’s Farm for John Farrington.

“As it stands, it looks like it would be a bill that we couldn’t fund through the business and would probably need to sell some assets,” John says.

Ahead of a meeting with professional advisers in December, John is building a spreadsheet of the business’s assets, ownership and values, which extends to commercial lets and rentals as well as the farming side.

“It’s a reasonably complicated business with different entities, so preparing the spreadsheet will help us work out what position we are in, what needs to be changed and where will be hit most.”

While not knowing the exact impact on the farm, any loss of land potentially impacts future viability.

“It depends on how much we would need to sell.”

The uncertainty is also extending to a potential new project where heads of terms were being lined up pre-Budget. “Now I’m thinking is it the right thing to do?”

Indecision about investing in the business will also impact other small family businesses that farmers use to keep the farm operational, he notes.

John is also facing an immediate £21,000 shortfall in the farm’s expected cashflow following the decision to accelerate cuts to the BPS.

“On top of a couple of poor harvests, we’re not exactly flush with cash. I’m not quite sure how we’ll manage this, but will probably need to put a couple of things we were planning on hold.”

Wales: Richard Anthony

Like many farmers, Richard Anthony is unsure of the implications of the new rules on APR and BPR for his business, based near Bridgend.

“The one thing I’m 100% sure of is that it will have some effect on us,” he says.

Since starting farming independently in 1997, Richard and his wife Lyn have built a sizeable business, with the aim of handing it onto his son, David.

“We are tenants on most of the land we farm, but the value of the land we have purchased and the business would probably take us into the category where we’d be liable, even after the reliefs available,” he says.

The changes do not incentivise the family to invest in the farm and business, when assets would be needed to be sold to pay tax when handing the business on.

“Most farm businesses will not have the cash available to pay these taxes without selling off assets and therefore making the business less viable,” he notes.

Richard is also concerned that tenanted land could become less available if landlords lose the tax advantage of owning and letting it out.

“They may decide to use their capital to invest in assets with higher returns.”

South East: Barney Tremaine

While inheritance tax changes will inevitably impact Cowdray Estate in West Sussex, succession planning isn’t the remit of farm manager Barney Tremaine.

“But the acceleration in reductions in BPS is more of a pressing concern.

“It came a bit under the radar,” he says.

“We were expecting a slightly harder reduction, but we’ll have a £95,000 change from this year to next. I thought we might have a £30,000 reduction, not £95,000.

“It’s a big hole to fill off the back of lower wheat prices and difficult weather.”

How to mitigate that change is already exercising his thoughts, starting with successfully getting a Sustainable Farming Incentive (SFI) 2024 agreement over the line to complement Higher Tier Countryside Stewardship and SFI 2023 agreements.

New options, including precision farming payments, are likely to be added, and possibly a small area of direct drilling, although the option’s three-year requirement makes it difficult to include, particularly with a growing area of maize.

But a key change is likely to be a further reduction in arable area, in favour of support for the estate’s livestock enterprises.

“I think we’ll probably drop the arable area by a third for risk mitigation and use that within SFI for herbal leys and legume fallows,” he says.

“We’ve also just started contract-rearing Wagyu on an integrated scheme linked to the dairy, so we can push that harder to utilise the herbal leys and have sheds full of beef cattle while the dairy cows are grazing.”

With most spring crops already dropped from the rotation, the area is likely to come by reducing wheat, which is now his most risky crop.

“Historically, we’ve grown milling wheat, but we will now focus most production for our own use. We also may look again at crops like triticale, to get the same output with a lower risk.”

Scotland: Doug Christie

The Budget changes will only contribute further to farmers feeling squeezed, and likely stifle reinvestment into the business, Fife farmer Doug Christie suggests.

In his own business, machinery purchasing, already not a priority, will continue to be delayed for as long as possible.

“I’m hoping to keep my aged machinery and drills going for a few more years. The welder will be like a well-acquainted old friend by the spring,” he says.

“But there is only so long you can keep going before having to reinvest in machinery.”

His family has memories of selling land to pay death duties when his grandfather died in the late 1960s.

“Fortuitously, Distillers Co Ltd bought 65ha of our land for its bottling plants and warehouses, keeping the bank at bay.”

He will seek advice about what route is needed more than 50 years later. “There are various painful options available.”

But he is concerned about the impact on biodiversity and natural capital. “For a while, we have come a long way in factoring in natural capital within the farming decision-making process.”

But he can now see a subtle switch in emphasis on the farm might be required – from farming with the environment front of mind, while making a profit, to being more hard-headed on the business side.

East Anglia: Jo Franklin

Hertfordshire tenant farmer Jo Franklin, together with partner Rob Hodgkins, can see some potential opportunities to arise from the changes to IHT provisions, including more land becoming available to buy.

“It will bring land to the market, and we question why corporates would want to buy something that gives a 0.5% return – that makes no sense,” she says.

“Obviously where solar panels, housing, etc, are in high demand, land prices will remain high. But we think the price will have a rejig to more, although maybe not entirely reflect the land’s capabilities.

“On the whole, tenants are good business people, so we think it will offer them a chance to buy some land of their own.”

She also questions why a 20% IHT bill means losing the entire farm.

“It’s not even the equivalent to an AHA [Agricultural Holdings Act] rent. We farm and pay rent. It’s perfectly possible. If someone wanted to hand me a £5m asset, I’d find a way to pay a bit of tax.”

But it does mean focusing on running a highly profitable business. “We’re business people first, farmers second, whereas the vast majority are probably the other way round.”

The furore over the changes is masking a bigger issue with diminishing profitability in the sector, she suggests.

“IHT is a smokescreen to bigger issues, such as national insurance contributions, loss of Basic Payment Scheme, the fertiliser tax, trade deals and increasing agricultural inflation that all affect the ability to pay IHT.

“If we can run profitable businesses, we can afford the bills.”

The combined effect of those policies is leaving a shortfall in the budget for the business of about £60,000 for the coming year, and some marked changes in the business.

“We’ve had to let two people go, reduced the farm area by 400ha, and go down 1,000 head of sheep, so Rob and I can effectively manage with just one other full-time employee.

“We’re also increasing productivity from our low-cost, high-return sheep dairy business, changed to breadmaking wheats to gain extra margin, and are waiting for a big SFI agreement to be signed off, which will help us through the next three years.”

North: Philip Metcalfe

While he’s not holding out much hope that the government will make changes to the IHT reliefs, Philip Metcalfe is following his accountant’s advice to sit tight until next year’s finance bill is passed.

“Maybe the Budget was the starting point and there might be some middle ground where things are relaxed or changed, otherwise there’s going to be a big impact.”

After taking advantage of Defra’s Future Farming Resilience Fund last year, he believed his succession plan was in order. “But we were relying on APR/BPR and we won’t be able to in future.”

With his initial estimate suggesting potentially an IHT bill of more than £600,000 – a bill the North Yorkshire farm business could not stand – he will assess other options, including using the seven-year transfer rule, remaining exemption limits and life cover.

Immediate cashflow is being impacted by the short-notice decision to accelerate reductions in the BPS. “It’s a hefty reduction which I didn’t see coming,” he says.

It means he will likely make a new SFI application to include direct drilling and precision farming payments. “It won’t cover the loss from the BPS, but should help.”

East Midlands: Colin Chappell

Selling off about 40ha of the farm is the likely practical reality of the new IHT rules, if the chancellor’s announcement proceeds as appears, North Lincolnshire farmer Colin Chappell suggests.

“But the actual wording and text in the finance bill will be critical to know how to deal with the changes,” Colin notes.

He does see some positives the change could bring, such as lower land prices allowing new entrants into the industry, but feels the policy is not particularly well thought through, with the £1m threshold being too low.

“It seems based on a long tail of 20- to 30-acre farms, which are probably mostly lifestyle farmers the policy is designed to catch.”

While selling 40ha would not affect the financial viability of the farm, it would return the business to nearer the size it was when Colin grew up.

Reducing area, along with the higher costs of employing staff with increased employer national insurance contributions and minimum wage increases, could also result in fewer staff.

“Those changes, plus a more rapid decrease in the BPS will affect my business more materially than losing 40ha,” he says.

“I’ve been working towards the lack of subsidies for probably six years, and while it has come earlier than I thought, I’ve invested in grain storage, drainage and machinery as much as I’m going to, and we will work with what we have now.”