A London School of Economics professor has outlined how inheritance tax relief on farmland has served to simply push up the price of land without improving the returns to active farmers.
Jeremy Clarkson and Sir James Dyson were among the multi-millionaires to decry Rachel Reeves’ plans to impose a levy on combined business and agricultural assets worth more than £1 million.
The Treasury says that roughly three-quarters of farms (73 per cent) will not be impacted by the tax change, but that hasn’t stopped a major rural backlash.
Writing in the Financial Times, Tom Bradshaw, president of the National Farmers’ Union, said the relief served to “protect the family farm”, adding that British farmers have “nothing left to give” after the latest announcement.
But Paul Cheshire, emeritus professor of Economic Geography at the London School of Economics, has pushed back strongly on Bradshaw’s assertions in response.
He said:
“The inheritance tax loophole on farmland, introduced in 1984, simply pushed up the price of land without improving returns to active farmers.
“This is because, like most agricultural subsidies, the value of the relief was capitalised into land values. As tax planners cottoned on to its role as a licence to avoid IHT, they advised their super-rich clients to buy land and take advantage of it. In the 20 years to 2012, the price of farmland increased fourfold.
“This turned landowning farmers into millionaires but — especially since land represents a cost of production — did no good to the incomes of food producers. It created impoverished millionaires who claimed a need for more support. At the same time, because more expensive land had to be squeezed even harder for the last drop of revenue, the environmental damage caused by intensive agriculture was made worse. Taking at least some of this tax loophole away will do no harm to family farmers but will help both public revenues and the environment.
“Just a shame the relief was not wholly abolished.”
Related: Boris Johnson says Emily Maitlis descended ‘into madness’ on US election night
