Frank Langrish’s grandfather first came to farm in the Tillingham Valley to the north of Udimore over a century ago. Frank eventually inherited, and has worked on the land for his whole lifetime, expanding the family holding to around 700 hectares (1,800 acres). Now in his early 70s, he shares the farm business, keeping sheep and beef cattle, with his 44-year-old son as a partner, while his 17-year-old grandson currently studies agriculture at Plumpton. He has every intention of passing it on down the Langrish generations, the archetype of a family farm that’s there for the long term.
Frank recalls a saying in the farming community, taught long ago: “Live as though you’re going to die tomorrow; but farm as though you’d live forever.”
However, with severe labour shortages experienced in the wake of Brexit, and reduction in government subsidies following the withdrawal of European Union funding, maintenance of the farm as a viable business was already a challenge. Tax changes announced by the chancellor of the exchequer, Rachel Reeves, in her October budget without any previous consultation or warning have come as an unwelcome shock.
Up to now, agricultural assets have been protected against personal Inheritance Tax (IHT) liability. Ownership of farms could be passed on death from parents to children, or other heirs, without payment of tax which the transfer of other forms of wealth attract.
For many holders of wealth, that amounts to a loophole in the tax system that’s been worth exploiting: make your money in other ways but keep it in the family by putting it into farmland. In 2021 Jeremy Clarkson famously told The Times newspaper it was his chief motivation in diverting a large portion of his fortune in that direction. He was following in the footsteps of others on the rich list. One consequence – besides loss to the government exchequer – has been a rise in the value of the land, not reflecting any gain in farm productivity but simply resulting from its effectiveness as a tax shelter.
October budget
Enter Ms Reeves, who heralded what she called a “reform” of agricultural property relief. From April next year, only the first £1 million of combined business and agricultural assets will continue to be shielded altogether from IHT liability. For such assets over £1m, inheritance tax will be payable, though at only half the rate applicable to other assets: effectively 20% rather than 40%. “This will ensure we continue to protect small family farms,” declared Ms Reeves.
Hastings and Rye MP Helena Dollimore, who is a member of the cross-party Environment, Food and Rural Affairs Select Committee of the House of Commons, agrees. She says she met last month with eight local farmers to discuss the main issues affecting them. She claims to be “committed to supporting farmers”, recognises “that food security is national security” and refers to the £5bn farming budget allocated over the next two years as “the biggest budget in our country’s history for sustainable food production and nature”.
The decision to halve IHT agricultural property relief was “tough” she admits, but was brought about by “the dire situation we inherited from the previous Conservative Government… [in order] to fund crucial public services like our NHS”.
Under the cosh
It’s an explanation that Frank Langrish doesn’t accept. The £5bn budget is not new money, he says, it was already agreed and signed off as an eroding tailpiece from EU funding. The ending of the BPS (Basic Payment Scheme) means in reality a reduction of around £50,000 in his farm’s income. He and many other local farmers see the impending tax increase as a huge financial hit, leading to further decline in an industry that’s already under the cosh. Its sudden imposition also makes it in their eyes unfair.
Most affluent holders of non-agricultural assets seek to mitigate future IHT liability by making lifetime gifts. These only become taxable if the donor fails to survive at least seven years from the date of the transfer. Few farmers will have done this hitherto with the family farm – not only because many typically carry on working on their own farms long past standard retirement age, but also because they will have been advised there was no IHT advantage in making the transfer prior to death.
“It’s true that we could still mitigate the effects of the anticipated IHT change by my passing my half-share in the business on to my son or grandson at this stage, provided that I then survive for another seven years,” says Frank. “The risk that I don’t survive could be met by appropriate insurance. But the cost of that insurance will be a lot higher than if I had started the process earlier.”
Farmers older than him will be harder hit. Any holder of agricultural assets valued at more than £1m who is now nearing the age of 80 would be unlikely to find viable insurance at any acceptable level.
There’s another complication which doesn’t arise in most other types of business: transferors of farmhouses who continue to reside in them after retirement will find that the tax authorities treat that continued residence as “reserving a benefit” to themselves so as to negate the tax effect unless they pay the transferee a market rent.
Low financial returns
The basic problem is that financial returns on the land measured by food production alone are low, as well as being subject to risks of adverse weather, volatile markets etc. Farmland valuations reflect other non-productive values – not only the tax benefits, which Ms Reeves is aiming to clobber, but the potential for more lucrative non-agricultural uses if planning controls allow them.
Already in this part of East Sussex, large areas of land are not being farmed but left derelict. Agricultural contractors – whether as skilled labour or as equipment specialists – are decreasing in number. Local labour is virtually non-existent. Supplies merchant Martin Channon went out of business in Rye last year; the nearest equivalent supplier is now in Heathfield.
“Any expansion of farm production requires huge capital investment,” says Frank. “A modern tractor costs in the region of £150,000. Upgrading of farm machinery may quickly amount to a million, and it needs to be managed for the long term. Why would we make that investment if it just increases our tax liability?
“This government came in claiming that their number one priority was to boost productivity and ‘grow the economy’. This will have the opposite effect.”
This article first appeared in Hastings Independent Press. Many thanks to the team there for letting us re-publish this story.
Image Credits: Dennis Leeds-George , Geograph CC .