Arthey Associates is a small independent Farm Business Consultancy practice in Oundle, East Northamptonshire, and we have the privilege of acting for around 40 family farming businesses in the region.
I say privilege because, in many of our clients’ cases, the farms have been in the ownership of their families for several generations, and I see it as a great privilege to be asked to play a small part in helping to make sure those families are able to honour the work of previous generations, and to keep the farm going for long enough to pass to the next one. Each family has their own history of how they came to the farm, how it has evolved through the generations, and the mark that each custodian has left during their tenure.
The changes to IHT rules now put that at significant risk. Despite the spin and the differing reports on the numbers of farms that will be caught up in this tax change, make no mistake that this will have a devastating impact on a huge number of family farms.
I don’t know what statistics the Government has used in stating that 75% of farms won’t be affected, but for those of us working in the industry, this seems a totally unfathomable calculation. The Defra “Balance sheet analysis and farming performance, England 2022/23 – statistics notice” itself puts the average net worth calculation for farms in England at £2.2 million across all farm types. For a mainly owner-occupied farm (with some land rented in), the average is £3.14 million. This is well beyond the £1m exemption, and even when other IHT exemptions are added – which we are told can increase the exemption to £3 million (but by no means available in all circumstances) – a significant number of farms will be caught up by this.
Defra statistics on farm holding sizes also don’t give an accurate picture of how many businesses will be affected. The reason being that, for various reasons, the land that an individual owns may be held under different CPH (County Parish Holding) numbers, or different SBI (Single Business Identifier) numbers. Taking the number of holdings of less than 100 acres as a very crude cut-off between those farms that will, on average, have a value under £1m v’s those over, Defra statistics show this to be around 50% of all holdings. However, the reality is that in many cases two or more of these statistical “holdings” are actually owned and farmed by the same person.
Whatever the methodology used, the point is that the number of farms the Government says will be affected is clearly underestimated, whether through misunderstanding of the statistical nuances or through a more sinister spin, and if this IHT change is implemented, it will see a devastating and irreversible change in the farming landscape of the UK. Farmers are asset rich, but cash poor with returns from farming sitting at less than 0.5% of capital employed. In many cases, farmers will be forced to sell off vital amounts of their land to pay the tax liability, which would see family farms largely disappear within two generations. This will impact our food security, significantly damage the rural community and economy, and put environmental custodianship at risk. Family farms are currently at the heart of all these issues.
Family farms provide the bulk of food production in the UK, whether it be for commodity markets, the supermarket supply chain, or niche products for sale with local food proprietors. For most, there is an intergenerational pride and understanding of how to produce good quality food whilst caring for the land and farming it in a responsible manner. Whilst there is a need for the business to succeed, it is also the family farmer that will allow emotion and tradition rather than strict commercial imperatives to play a part in their decision making, such as maintaining a herd of a rare breed of suckler cows on the farm because “that’s what the family did”. It is for this reason that the UK food industry is able to rely on a supply of good quality, locally produced and varied produce and products.
If all or part of a family farm has to be sold to pay an IHT burden, I don’t believe other neighbouring family farms will now be as much “in the market” to buy the land. Mindsets will change from one of expansion to one of preservation. Instead, that void is likely to be filled by non-agricultural buyers’ intent on land-banking for uses such as carbon capture, or by large-scale corporate farmers looking to produce commodity crops on just the most profitable land, with little care or attachment to the character of the farm they are operating on. Either way this will lead to a decline in the food production of the UK meaning an even greater reliance on imports and a heightened food security risk to the UK population – you only need to look back to the Covid pandemic to see how quickly this can impact the public day-to-day.
The rural community and economy will also feel the impact. Families that have farmed in an area for multiple generations are often at the heart of village communities because they feel a deep sense of belonging there, and a desire to maintain it for future generations. It is they who sit on parish councils or the board of governors of the local school or go out to clear the roads in storms and snow. The Government shouldn’t underestimate how much the fabric of a local community would be affected by the disappearance of family farms.
Similarly, family farms are the lifeblood of the rural economy, both directly and indirectly. As well as permanent and seasonal employment on the farm, farmers regularly require the services of various industries, from consultancy and professional services like mine, to builders and other trades, mechanics, pest controllers and many more. Less farming businesses means less work for all these industries as well.
Farms have been encouraged to diversify income streams to supplement the very marginal incomes received from farming. They’ve invested in turning underutilised buildings into commercial units, holiday lets, farm shops, equestrian livery yards, dog walking fields etc. to bring in vital additional income. With the £1m relief applying to both Agricultural and Business Property combined, farmers will now essentially be penalised for such diversification. It is likely that this will act as a disincentive for farms to further diversify and enhance the asset value of their farm, and some may even close existing enterprises. That will have a knock-on impact to many other local businesses who benefit from their existence – and, I might add, the potential loss of Business Rates income to District Council coffers too.
I do not believe land values will decrease significantly despite an IHT change. The rules may make wealthy investors think twice about buying farmland as a tax-efficient wealth preservation tool (something that I dare say the Government were trying to target with this policy), but other high value land uses are evolving that will step into that void. Corporations purchasing land for Carbon Capture, Biodiversity Net Gain or large-scale renewable schemes will, in many areas, mean that land values do not reduce sufficiently (if at all). The idea of “cashing in” and selling the family farm is sacrilege to many farmers, with the sole aim to pass it on for the next generation – Capital Gains Tax already ensures tax dues are paid when someone decides to sell land off.
Family farms can produce food and care for the environment together. They maintain and enhance areas for wildlife and biodiversity on the farm because they enjoy being amongst nature whilst striking a balance with the need to farm the land to produce food. This is not just a place of work; it is their home and a place to be enjoyed when down-time allows.
A policy that will ultimately lead to a replacing of family farms with large-scale carbon capture and rewilding may help the Government to get towards Net Zero quickly, but the problem of greenhouse gas emissions and global warming is a worldwide issue, and less home-grown food means a greater reliance on imports that are often grown to lower environmental regulation, and with a greater carbon footprint – the problem isn’t solved, just exported elsewhere in a cynical “green-washing”. Farming can and should be part of the solution towards the UK’s Net-Zero targets, but not if there are not the people and the industry left to remain custodians of the land.
The damage this budget change would do to an already-under-pressure industry is simply not worth the amount of tax that it will generate, is not in the public interests, and a rich part of our country’s rural fabric and history will be lost forever.
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