This blog is based on a piece, written by George Dunn, TFA Chief Executive, for The Cumberland News and Westmorland Gazette, published on 26 July 2024.

In my pre-election article, written last month, I asserted that the General Election manifesto of the Labour Party lacked too much by way of detail to really understand what might be delivered by the Party in Government. However, since it has swept to power in Westminster there has been considerable chatter around what Labour’s priorities will be for rural areas and a strong focus on capital taxes, particularly in respect of the taxation of agricultural land.

Whatever Keir Starmer, Rachel Reeves and other senior figures within the Labour Party might have thought about the morality or fairness of the way in which Inheritance Tax Agricultural Property Relief (APR) allows owners of agricultural land to pass it down through the generations without the burden of taxation.  The TFA is seeking to convince the Labour Party to consider the unintended consequences of what might happen following a simple abolition of that belief.

Of course, the TFA has directed the new Government to look at the well-constructed arguments set out within the Rock Review into agricultural tenancies which recommended reform rather than rejection of APR.  The suggestion that APR should be abolished would have serious implications for the let sector of agriculture. We have already seen concerns about inheritance tax charges change the way that traditional estates within Cumbria have thought about the management of their agricultural land, and that is before there is any change to the inheritance tax regime. Rural estates with significant residential and mineral interests will want to ensure that they have sufficient business activity elsewhere on their estates. This will enable them to be able to qualify for Business Property Relief from inheritance tax across the whole of their estates.  If APR was abolished this will make things much more difficult.

It is worth pointing out that in a world without APR, the vast majority of owner-occupied farm businesses would continue to be able to pass down their agricultural land through the generations with the benefit of Business Property Relief (BPR). However, landlords, who will not have access to BPR in respect of their let land, would respond by seeking to recover possession of let land to farm it in hand to qualify for BPR. That would be to the detriment of the tenanted sector of agriculture.

However, like the Rock Review, the TFA believes that APR does need reform. Rather than abolishing it for let land, the TFA believes that it should be available only to those landlords prepared to let for the longest terms (10 years or more) whilst at the same time providing those landlords with the opportunity to deem the rental income received in respect of those lets as trading income to assist with access to BPR across their wider estate interests. In our view, this would deliver more sustainable agricultural tenancies and begin to reverse the trend of insecurity.  The average length of a new FBT is only just over three years and over 80% of all new tenancies are let for five years or less.

Whilst, under the previous Conservative administration, the Treasury consulted on a similar proposal to this, it failed to implement any change. Hopefully, with a new Government, the door remains open to look at this again. At the same time, there has been discussion about the availability of capital gains tax rollover relief connected with the purchase of agricultural land. It is true that this relief has an inflationary impact on land prices. A better way forward might be to allow rollover relief to be available in respect of investments into fixed equipment on let land rather than the purchase of the land itself as an aid to productivity.

All eyes will be on Rachel Reeves to see what she will deliver in her first fiscal event this autumn.