Why are Farmers Complaining

kinger101

FIREDreamer said:

Andy_L said:

artyboy said:

Given that farms are a business, and often quite a large one, is there a reason why their assets are not typically owned through limited companies (or another suitable legal entity structure) that the farmer and any relevant spouse/offspring could be directors of?

I admit I'm no expert in this field, but it seems to be the fact that the land etc is directly owned by the farmer as a personal asset that's what will cause IHT liability...

The farmer would still be the owner of the Ltd company so it would still be an asset in the estate.

Sell the shares to his successor for £1.

It's been a while since I worked in tax but I can guarantee you that won't work

kinger101

Pat38493 said:

Doesn't HMRC have blanket legislation to clamp down on tax avoidance schemes that they could have used here?  e.g. if some people are buying farms in order to avoid IHT (and then in some cases boasting about it in public), cannot HMRC basically just declare that their property is no longer a farm if it was obviously purchased specifically to avoid IHT.

I've seen before that HMRC has some kind of rules where they can deem certain activities as not allowed if they are clearly designed to avoid the spirit of tax rules.

Also - could they not just have made a rule along the lines that the farm has to have been handed down through several generations of defined eligible family, and is being handed down again in the same way.  This is not the same as a farm that was purchased in recent years by someone who was never a farmer in the past.

As I'm sure has been stated on this thread before, IHT is generally the most disliked tax even though hardly anybody ends up paying it.  It's also arguably a very progressive tax as it interferes with the ability of the wealthy to give heirs a head start in life, regardless of their underlying abilities.

The problem is that even in a civil court, HMRC would likely lose as they have zero proof of the underlying reasons behind the purchase of farmland.

It also relies on HMRC making an assessment rather than self assessment.

HMRC do not like deciding. They like applying unambiguous rules where there's no legal repercussions if commissioners or s judge decide their interpretation of the law wrong 

Veteransaver

LHW99 said:

leosayer said:

Pat38493 said:

Doesn't HMRC have blanket legislation to clamp down on tax avoidance schemes that they could have used here?  e.g. if some people are buying farms in order to avoid IHT (and then in some cases boasting about it in public), cannot HMRC basically just declare that their property is no longer a farm if it was obviously purchased specifically to avoid IHT.

I've seen before that HMRC has some kind of rules where they can deem certain activities as not allowed if they are clearly designed to avoid the spirit of tax rules.

Also - could they not just have made a rule along the lines that the farm has to have been handed down through several generations of defined eligible family, and is being handed down again in the same way.  This is not the same as a farm that was purchased in recent years by someone who was never a farmer in the past.

As I'm sure has been stated on this thread before, IHT is generally the most disliked tax even though hardly anybody ends up paying it.  It's also arguably a very progressive tax as it interferes with the ability of the wealthy to give heirs a head start in life, regardless of their underlying abilities.

There is no 'spirit of the tax rules' as such but GAAR comes close to doing what you say.

However if someone buys a farm and then continues to operate the farm and maybe benefit from land values increases then it's would be a push to describe this is anything other than a normal transaction.

The thing here is, they only "benefit" from land value increases if it is sold.

Passing it down to the next generation doesn't access that value, as only the profit from working the land is available. If this land value has to be realised in order to pay the tax, then it is likely that the land may go out of production altogether, which isn't good for our food security.

People may not like going back to mainly having seasonal fruit, vegetables and meat, but that is preferable to finding that climate change, wars etc are significantly reducing everything that can be bought in the supermarkets.

But that is the whole problem, it's a huge loophole because the beneficiaries can sell up on inheriting the farm, even if the land was legitimately farmed in the first place, if the beneficiaries aren't farmers (lots of farmers kids don't carry on farming), it becomes complicated too if there are a number of kids as they'd all need to agree to keep the farm), so they can all simply sell up and they have no tax to pay, no IHT and no CGT.
How can it be right that the deceased's offspring could inherit £10m and pay ZERO IHT, whereas another deceased's offspring might inherit £1m and pay 40% tax on the bit over £500k, ie £200k in IHT
I do have sympathy when it's a farming family and they continue to farm, but at some point the family will no longer continue to farm and the last beneficiaries get a huge windfall. Anyway there are lots of legitimate ways around it, like gifting the farm (or parts of the farm) more than 7 years before death etc
Yes some farmers aren't "wealthy", but many many are and I don't see why I should have to pay more tax so that those people get to pay nothing.

kinger101

Veteransaver said:

LHW99 said:

leosayer said:

Pat38493 said:

Doesn't HMRC have blanket legislation to clamp down on tax avoidance schemes that they could have used here?  e.g. if some people are buying farms in order to avoid IHT (and then in some cases boasting about it in public), cannot HMRC basically just declare that their property is no longer a farm if it was obviously purchased specifically to avoid IHT.

I've seen before that HMRC has some kind of rules where they can deem certain activities as not allowed if they are clearly designed to avoid the spirit of tax rules.

Also - could they not just have made a rule along the lines that the farm has to have been handed down through several generations of defined eligible family, and is being handed down again in the same way.  This is not the same as a farm that was purchased in recent years by someone who was never a farmer in the past.

As I'm sure has been stated on this thread before, IHT is generally the most disliked tax even though hardly anybody ends up paying it.  It's also arguably a very progressive tax as it interferes with the ability of the wealthy to give heirs a head start in life, regardless of their underlying abilities.

There is no 'spirit of the tax rules' as such but GAAR comes close to doing what you say.

However if someone buys a farm and then continues to operate the farm and maybe benefit from land values increases then it's would be a push to describe this is anything other than a normal transaction.

The thing here is, they only "benefit" from land value increases if it is sold.

Passing it down to the next generation doesn't access that value, as only the profit from working the land is available. If this land value has to be realised in order to pay the tax, then it is likely that the land may go out of production altogether, which isn't good for our food security.

People may not like going back to mainly having seasonal fruit, vegetables and meat, but that is preferable to finding that climate change, wars etc are significantly reducing everything that can be bought in the supermarkets.

But that is the whole problem, it's a huge loophole because the beneficiaries can sell up on inheriting the farm, even if the land was legitimately farmed in the first place, if the beneficiaries aren't farmers (lots of farmers kids don't carry on farming), it becomes complicated too if there are a number of kids as they'd all need to agree to keep the farm), so they can all simply sell up and they have no tax to pay, no IHT and no CGT.
How can it be right that the deceased's offspring could inherit £10m and pay ZERO IHT, whereas another deceased's offspring might inherit £1m and pay 40% tax on the bit over £500k, ie £200k in IHT
I do have sympathy when it's a farming family and they continue to farm, but at some point the family will no longer continue to farm and the last beneficiaries get a huge windfall. Anyway there are lots of legitimate ways around it, like gifting the farm (or parts of the farm) more than 7 years before death etc
Yes some farmers aren't "wealthy", but many many are and I don't see why I should have to pay more tax so that those people get to pay nothing.

You make good points but they could have been dealt with via legislation.  There are already examples of rollover reliefs in CGT.  A similar concept could have been extended so that only land owned and farmed by a family could be passed on without IHT if it continued to be farmed for X years.  A tapered IHT rate could be due in between.

The real net beneficiaries of this one are trust fund law.

I suspect they tested the optics on this one and thought this played out well with the ignorant rich farmers narrative so just went with simple instead.

Jeremy535897

eskbanker said:

The_Green_Hornet said:

Maybe because farmers were told before the election that inheritance tax rules wouldn't change.

Do you have an authoritative source for that?

The only reference to IHT in the Labour manifesto was "We will end the use of offshore trusts to avoid inheritance tax so that everyone who makes their home here in the UK pays their taxes here".

https://www.nfuonline.com/updates-and-information/labour-has-no-intention-of-changing-apr-says-shadow-defra-secretary/

Grumpy_chap

For all the uproar that this taxation change is causing, I wonder whether it will actually raise much additional IHT anyhow.

At present, and I was entirely unaware until the Budget, farms are exempt from IHT.  This means that the Farmer Senior does not really need to consider succession planning with regard to the farm and has simply allowed the farm to pass when at death.  Farmer senior probably stopped working the farm several year prior.  With the change in IHT, one can only assume that Farmer Senior will do some succession planning and pass the farm on at the same time as Farmer Senior ceases working the farm.  Resulting in PET and avoiding IHT.

The second group of farm owners - the specific target of the taxation change - are apparently rich, old men who know nothing about farming but buy farms to avoid IHT.  These individuals will now (on death) have the assets within the farm subject to IHT at 20% (half the normal rate) and a 10-year payment period for that tax liability.  Still better than most other forms of assets which are subject to IHT at 40% and the tax liability needs to be settled quickly.  This is  now (thanks to the Budget) a widely known IHT reduction opportunity and, simply through increased awareness, might be taken up by more individuals than has previously (currently) been the case.

Jeremy535897

Grumpy_chap said:

For all the uproar that this taxation change is causing, I wonder whether it will actually raise much additional IHT anyhow.

At present, and I was entirely unaware until the Budget, farms are exempt from IHT.  This means that the Farmer Senior does not really need to consider succession planning with regard to the farm and has simply allowed the farm to pass when at death.  Farmer senior probably stopped working the farm several year prior.  With the change in IHT, one can only assume that Farmer Senior will do some succession planning and pass the farm on at the same time as Farmer Senior ceases working the farm.  Resulting in PET and avoiding IHT.

The second group of farm owners - the specific target of the taxation change - are apparently rich, old men who know nothing about farming but buy farms to avoid IHT.  These individuals will now (on death) have the assets within the farm subject to IHT at 20% (half the normal rate) and a 10-year payment period for that tax liability.  Still better than most other forms of assets which are subject to IHT at 40% and the tax liability needs to be settled quickly.  This is  now (thanks to the Budget) a widely known IHT reduction opportunity and, simply through increased awareness, might be taken up by more individuals than has previously (currently) been the case.

Maybe a few rich old men, more likely developers who want to put solar panels, wind turbines or houses on green belt, but the biggest purchasers will be investors using 30 year biodiversity net gain deals to enable builders to meet nitrate neutrality rules.

Grumpy_chap

Jeremy535897 said:

Grumpy_chap said:

For all the uproar that this taxation change is causing, I wonder whether it will actually raise much additional IHT anyhow.

At present, and I was entirely unaware until the Budget, farms are exempt from IHT.  This means that the Farmer Senior does not really need to consider succession planning with regard to the farm and has simply allowed the farm to pass when at death.  Farmer senior probably stopped working the farm several year prior.  With the change in IHT, one can only assume that Farmer Senior will do some succession planning and pass the farm on at the same time as Farmer Senior ceases working the farm.  Resulting in PET and avoiding IHT.

The second group of farm owners - the specific target of the taxation change - are apparently rich, old men who know nothing about farming but buy farms to avoid IHT.  These individuals will now (on death) have the assets within the farm subject to IHT at 20% (half the normal rate) and a 10-year payment period for that tax liability.  Still better than most other forms of assets which are subject to IHT at 40% and the tax liability needs to be settled quickly.  This is  now (thanks to the Budget) a widely known IHT reduction opportunity and, simply through increased awareness, might be taken up by more individuals than has previously (currently) been the case.

Maybe a few rich old men, more likely developers who want to put solar panels, wind turbines or houses on green belt, but the biggest purchasers will be investors using 30 year biodiversity net gain deals to enable builders to meet nitrate neutrality rules.

I assume those developers don't incur IHT at any time so would not be affected by the recent Budget 

eskbanker

Jeremy535897 said:

eskbanker said:

The_Green_Hornet said:

Maybe because farmers were told before the election that inheritance tax rules wouldn't change.

Do you have an authoritative source for that?

The only reference to IHT in the Labour manifesto was "We will end the use of offshore trusts to avoid inheritance tax so that everyone who makes their home here in the UK pays their taxes here".

https://www.nfuonline.com/updates-and-information/labour-has-no-intention-of-changing-apr-says-shadow-defra-secretary/

Yes, that'll be the same event mentioned in earlier posts, after which there was a bit of chat about the difference between "farmers were told before the election that inheritance tax rules wouldn't change" and "farmers were told last year that there were no plans to change inheritance tax rules", i.e. governments will generally be held accountable for manifesto commitments rather than less formal dialogue from significantly earlier.

Jeremy535897

Grumpy_chap said:

Jeremy535897 said:

Grumpy_chap said:

For all the uproar that this taxation change is causing, I wonder whether it will actually raise much additional IHT anyhow.

At present, and I was entirely unaware until the Budget, farms are exempt from IHT.  This means that the Farmer Senior does not really need to consider succession planning with regard to the farm and has simply allowed the farm to pass when at death.  Farmer senior probably stopped working the farm several year prior.  With the change in IHT, one can only assume that Farmer Senior will do some succession planning and pass the farm on at the same time as Farmer Senior ceases working the farm.  Resulting in PET and avoiding IHT.

The second group of farm owners - the specific target of the taxation change - are apparently rich, old men who know nothing about farming but buy farms to avoid IHT.  These individuals will now (on death) have the assets within the farm subject to IHT at 20% (half the normal rate) and a 10-year payment period for that tax liability.  Still better than most other forms of assets which are subject to IHT at 40% and the tax liability needs to be settled quickly.  This is  now (thanks to the Budget) a widely known IHT reduction opportunity and, simply through increased awareness, might be taken up by more individuals than has previously (currently) been the case.

Maybe a few rich old men, more likely developers who want to put solar panels, wind turbines or houses on green belt, but the biggest purchasers will be investors using 30 year biodiversity net gain deals to enable builders to meet nitrate neutrality rules.

I assume those developers don't incur IHT at any time so would not be affected by the recent Budget 

Most likely.