Eagle eyed readers of The Times will have noticed an article on 28 September reporting that Labour is “targeting tax breaks on inheritance”. 

The article makes clear that Agricultural Property Relief for landlords may be a particular focus. 

Pausing there for a disclaimer.  With about a year to run before the next election there are going to be lots of rumours and speculation about tax policy changes between now and then. Most of it won’t play out into hard policies.  But let’s play what if? and think through what such a change might mean for landowners. 

There is no suggestion that relief for in hand farmers is going to be abolished or reduced. So we are focussed on the availability of relief for agricultural landlords – where for lettings post 1995 100% relief is a possibility with 50% in other cases.  The relief is therefore very significant to those owners. 

A loophole that allows “the super-rich to protect their wealth”?

As it is described in The Times. It is true that there are “super-rich” individuals who have invested in farmland but in this writer’s experience they usually farm in-hand rather than letting to a tenant.  Such farmers would not be affected by change like this. 

Who would be affected? 

More likely traditional landed estates with significant holdings of let farmland would be the hardest hit.  Many would have spent the last decade or so agreeing new tenancies with their farm tenants in order to achieve the 100% rate of relief.  In many cases the reason the estate will have chosen to make land available to a tenant because of the possibility of that relief. 

How could estates minimise the tax exposure? 

Most well advised estates will have a clear view of the likely Inheritance Tax exposure arising on the death of the current owner or beneficiary.  In many cases, life policies will have been taken out to cover the likely tax bill.  Some may already have expanded their in-hand operations in order to benefit from the “Balfour” type relief for business property which might enable some let non-agricultural assets (such as cottages) to be covered by IHT relief.  But a change of the sort suggested in The Times article would create a strong and immediate tax incentive for taking more land in-hand and farming it directly. 

Landowners would also have more reason to contest succession applications from tenants of “old” Agricultural Holdings Act tenancies.  Tax could be a very strong driver here because the owner could be faced with two possible outcomes: a farm let for another generation with no IHT relief versus taking the farm in-hand, having an uplift in its value to vacant possession figures and full IHT relief. 

Landowners looking to let farmland today should think about the issues very carefully. Depending on the age of the owner and how immediate the IHT risk really is, a relatively short term FBT to keep open the option for farming in-hand might be attractive.