Amy: 0:03

Hello, and welcome again to the Bench Report, where we discuss recent debates and briefings from the benches of the UK Parliament. A new topic every episode. You're listening to Amy and Ivan. Our focus today is on some pretty complex financial rules affecting family farms. Specifically, we're looking at a really quite heated debate from Westminster Hall about proposed changes to agricultural property relief, or APR, and business property relief, BKR.

Ivan: 0:31

That's right. These are key parts of the inheritance tax system. The idea is to understand what they are, why tweaking them is causing such, well, panic in some quarters, especially for farmers in Northern Ireland.

Amy: 0:42

Okay, let's start there then. The Northern Ireland case. What makes it so distinct?

Ivan: 0:46

Well, according to members of Parliament like Carlo Lockhart, farming isn't just an industry in Northern Ireland. It's described as the region's very foundation. It sustains rural life, employs many, and apparently feeds over 10 million people each year.

Amy: 0:58

And the argument hinges on this phrase you hear a lot: farms being asset rich but cash poor. What does that actually mean in practice?

Ivan: 1:06

It means that if you look at the farm on paper, the land, the buildings, maybe livestock, the machinery, it could be valued at millions. We saw land values mentioned, uh upwards of 30,000 pounds an acre in places like Upper Ban. Huge sums.

Amy: 1:21

But the actual cash flowing through the business day to day or month to month might be relatively modest.

Ivan: 1:26

Exactly. So the big fear is inheritance tax, IHT. Without this agricultural property relief APR, when a farmer passes away, the family could face an enormous tax bill based on that high asset value.

Amy: 1:39

And they worry they wouldn't have the ready cash to pay it.

Ivan: 1:42

Precisely. Leading to the nightmare scenario of having to sell off land or even the whole farm just to settle up with HMRC. This is seen as threatening the whole model of passing farms down through generations.

Amy: 1:52

And these aren't huge corporations we're talking about. The figure mentioned was 99% of farms in Northern Ireland are family holdings.

Ivan: 1:58

That's the context. And there's even a suggestion this uncertainty is already um discouraging investment. Farmers might be holding back on necessary upgrades, you know, fixing walls, buying a needed tractor, because they're trying to keep cash aside just in case.

Amy: 2:13

The potential impact numbers sounded quite stark too. A third of all farms, maybe three-quarters of dairy farms in Northern Ireland possibly affected.

Ivan: 2:22

Those are the estimates being put forward by opponents of the change. Yes. It paints a picture of significant disruption.

Amy: 2:28

Okay, so that's the perspective from the farming community and their representatives. What's the Treasury's rationale for proposing these changes in the first place?

Ivan: 2:36

Well, the Exchequer Secretary framed it in terms of restoring economic stability and raising revenue fairly. The official line is that the current system, as it stands, provides disproportionate benefits to the very wealthiest estates.

Amy: 2:49

And they have data to back this up.

Ivan: 2:51

They do. Each of our C figures for the 2021-22 tax year were cited. They apparently show that just 7% of estates claiming APR accounted for 40% of the total relief given.

Amy: 3:01

Wow, okay. So a small number of very large estates getting a huge chunk of the tax break. How many estates are we talking about?

Ivan: 3:09

Around 100 estates, according to the debate, claimed relief worth $219 million in lost tax revenue. So the government argues this points to an imbalance.

Amy: 3:17

So how are they proposing to fix this perceived unfairness while they'd argue still supporting smaller farms?

Ivan: 3:24

The proposal isn't to scrap APR altogether. It's presented as a targeted reform. They're introducing a threshold.

Amy: 3:30

Right. The 1 million pounds, how does that work?

Ivan: 3:32

Individuals would still get 100% relief. So no IHT on the first 1 million pounds worth of combined agricultural and business assets they inherit.

Amy: 3:42

And what happens above that 1 million mark?

Ivan: 3:44

Above that threshold, the relief drops to 50%. This doesn't mean they pay the full 40% IHT rate on the excess value. Instead, they pay tax at a reduced rate, up to 20% on the value above 1 million pounds.

Amy: 3:56

I see. So it softens the blow compared to no relief, but it's still a significant change for estates valued over 1 million pounds.

Ivan: 4:02

It is. And that one million pound threshold is predictably viewed very differently. Opponents argue that with land values so high, particularly in areas like Northern Ireland, 1 million pounds is easily reached, maybe even just by the land and the farmhouse itself. They say it's nothing in the context of a whole working farm.

Amy: 4:22

l But the Treasury has a counter to that.

Ivan: 4:24

Yes, they point out this relief is in addition to other existing IHT allowances. For example, the spouse exemption means assets path to a surviving husband or wife are typically free of IHT anyway. They calculate that a couple could potentially pass on up to three million pounds tax-free, combining various allowances.

Amy: 4:43

And they also mentioned something about payment flexibility.

Ivan: 4:46

That's another key point from the government side. For those farms that do end up owing some IHT under the new rules, they offer the option to pay the bill in installments over 10 years, and crucially interest-free.

Amy: 4:57

Which could certainly help with the cash flow problem we discussed earlier.

Ivan: 5:00

It's designed to. The Treasury also estimates that across the entire UK, only around 520 farms per year would actually pay any additional IHT as a result of these specific reforms.

Amy: 5:11

So a relatively small number overall, but potentially hitting those specific farms quite hard if they're just over the thresholds and don't have liquid cash.

Ivan: 5:19

That's the crux of it. It boils down to this fundamental conflict. The government's aim for what it sees as a fair tax system versus the unique reality of farming, where wealth is often tied up for generations in the land itself, not an easily accessible savings or investment.

Amy: 5:36

It really highlights the difficulty policymakers face, doesn't it? Trying to adjust tax laws to be equitable without unintentionally damaging long-standing family businesses, especially ones vital for things like, well, our food supply.

Ivan: 5:50

Absolutely. It's a classic policy tight rope walk, balancing physical objectives with the real world impacts on specific sectors and communities.

Amy: 5:57

And it raises that bigger question about how we even define wealth for tax purposes today. Is it the value of the physical assets you hold, like land, or is it more about the liquid cash you can access? Something to think about. As always, find us on social media at Bench Report UK. Get in touch with any topic important to you. Remember, politics is everyone's business. Take care.