Opinion: Tax system needs some ‘imaginative evolution’

Across the UK, machinery dispersals and land sales are on the rise.

Some might see this as tragedy, but I want to give a big shout-out to all those former farmers who have made the decision to sell up.

They are providing opportunities for expanding businesses and ambitious farmers to make a difference.

See also: Opinion – farmers need a new mindset and sense of purpose

About the author

Emily Norton

Emily is a Norfolk-based farmer and independent rural policy and strategy advisor, with a particular interest in natural capital. Formerly head of rural research at Savills, she is now chair of the Advisory Group for Soil Association Exchange and a member of the Environmental Markets Board. She is on the CLA’s national policy committee and a Royal Norfolk Agricultural Association trustee.

Read more articles by Emily Norton

Despite this, the latest stats for UK agriculture indicate that a whopping 35% of all farmers are aged over 65.

Why is it so hard for us to normalise retirement from farming? The answer is quite simple – inheritance tax reliefs (IHT). They are the blocker to generational renewal.

The Country Land and Business Association is arguing that loss of agricultural property relief (APR) will impact on food security. They may have a point.

As farmers in England no longer need to be farming to claim from the Basic Payment Scheme, keeping land in agriculture for tax reliefs might be the only reason some are carrying on.

The truth is that neither subsidies nor tax reliefs should be reasons to farm.

Sensible advisors point out that the tax-tail should never wag the business dog, but too often tax planning delays and frustrates succession conversations past a point of no return.

It has become more important to ensure that rural businesses and farmhouses look right for tax planning than perform right for those trying to run them.

That tenants are prevented from diversifying by archaic definitions of agricultural activity is primitive and iniquitous.

I’m not a fan of how the reliefs encourage the older generation to potter about on-farm for life, rather than retiring off-farm with dignity.

For the middle generation of farmer-owners, providing working capital, a pension fund and reinvestment for the future from high-risk farm returns is tough.

There are positives, of course. APR remains a vital driver behind the availability of land for rent, and it protects viable farms from being broken up to meet death duties. It’s not the fault of farmers that their land is now worth so much money, and that returns from farming are so low.

Saying that, removing tax benefits might help reduce land values, enabling successful farms to expand at a more realistic rate of return.

I am warned of the “law of unintended consequences” when dreaming up an alternative to APR.

Getting rid of IHT altogether is an option, but within farming, we’d need to ensure that incentives are retained for producing food and making land available for rent.

Income and capital gains tax reliefs can do this.

Much-mooted higher capital tax rates will make it more worthwhile to invest in tax-planning measures, compounding decisions to wait until death; a lower flat rate (at say 10%) on all capital transactions would help end the culture and industry of tax avoidance that pervades our sector.

Only land agents, lawyers and accountants would complain.

The country’s finances might be in dire straits, but farming does not have the broad shoulders needed for a tax hike – there is already too much risk and no liquidity or surplus to spare.

I would like the reliefs to evolve though. More certainty would help, such as getting rid of the seven-year taper on in-lifetime transfers and crystallising the IHT position at the start of a tenancy.

With a little imagination, the tax system could become a lever for positive change across farming.