Inheritance tax

John464

https://forums.moneysavingexpert.com/discussion/comment/82157892#Comment_82157892

If its payment for work why isn't he paying income tax and national insurance on it like we have to?

Politics aside this is relevant to Savings and Investments. Because it makes it more tax efficient for people like Dyson to close his UK factories and Invest in agricultural land instead.

Society takes Capital Gains Tax/40% Inheritance Tax on other unearned assets. Why should agricultural land be any different? Many Real Tenant Farmers are in favour of IHT on land, because it would give them a chance to own their land too.

Section62

https://forums.moneysavingexpert.com/discussion/comment/82157726#Comment_82157726

They don't necessarily have to split up the farm - they could borrow, or sell some land and rent it back like the Tenant Farmers have to…

Who are they going to sell the land to? The big corporations hoovering up land for investment purposes? It won't be people starting up in farming, because as others have pointed out already, the economics of establishing yourself in farming don't work that way. Buying (say) 40% of an existing farm doesn't make for a viable new farm to sustain the farmer (and their family) unless they are wealthy to start with.

Many tenant farmers don't look on renting the land as something they "have to" do in the negative sense you are putting it. Renting land is one of the only ways of getting started in farming - if there wasn't land to rent then would-be farmers won't become farmers. People who understand the business know that the 'historic' estates, rather than being an evil needing to be abolished, are one of the few ways people without capital can enter farming.

The alternative is for the state to buy land and rent it to would-be farmers. Which has been tried before - see 'county farms' - with very mixed outcomes. Local and central governments lack the cash and understanding of the business to do make that a good idea now.

Real Farmers who are in favour of landowners paying the same inherritance tax we have to.

I know a lot of farmers. I don't know any 'Real Farmers' who think that.

And land which is under corporate ownership won't be subject to IHT.

PS: good luck with getting planning permission for housing. Unless you are Royalty and don't need it.

Do you have a source for that?

Making it much more tax efficient to buy agricultural land than invest in factories Britain desperatly needs.

No individuals looking for a tax efficient scheme are going to invest in "factories". Unless they need to generate huge losses.

Businesses needing more factory space in the UK will build it - if it is economically viable to manufacture in the UK. There are ways of making it more economically viable to mass-manufacture in the UK, but changing IHT rules to remove agricultural exemptions would be a pretty bizarre way of going about it.

Whether the UK desperately needs factories could be debated for pages. Whether we need to make sure we can grow enough food in the UK, and the need to keep UK farming viable, should be a much shorter debate.

QrizB

Who are they going to sell the land to?

People who want it to be farmed.

The big corporations hoovering up land for investment purposes?

Agricultural land is only appreciating in value (and attractive to big corporation ls for investment purposes) because it's in demand by IHT dodgers. The ROI for agricultural land is under 1% if you ignore land inflation. You can do considerably better with gilts, for example.

Extended IHT to include agricultural land and land prices should fall significantly.

And land which is under corporate ownership won't be subject to IHT.

The shares in those corporations will be liable to IHT, though.

Section62

https://forums.moneysavingexpert.com/discussion/comment/82158016#Comment_82158016

Extended IHT to include agricultural land and land prices should fall significantly.

Bankrupting the family farmers who've borrowed to expand their farms to an economically viable size.

John464

https://forums.moneysavingexpert.com/discussion/comment/82158006#Comment_82158006

I know Real Farmers very well who are in favour of IHT on Agricultural Land. But they can't say so, and I won't name them on here, because it would antagonise their landlord for obvious reasons. Neither could they make their voice heard like the £billionaire landowners because they don't own newspapers / hire politicians / drive their agricultural machinery into Central London illegally to block the roads.

If £billionaire landowners paid their share of inheritance tax like we do, it wouldn't need to be 40% for us.

And it would remove the tax incentive for people like Dyson to close his much needed UK factories and Invest in Agricultural land instead.

QrizB

https://forums.moneysavingexpert.com/discussion/comment/82158023#Comment_82158023

That's business for you.

Section62

https://forums.moneysavingexpert.com/discussion/comment/82158026#Comment_82158026

And it would remove the tax incentive for people like Dyson to close his much needed UK factories and Invest in Agricultural land instead.

Dyson moved his production to the Far East because manufacturing costs were cheaper and the manufacturing would be closer to his target markets -

http://news.bbc.co.uk/1/hi/business/1801909.stm

It is possible the BBC article is false, and his reason for the move was in order to buy UK agricultural land instead, but the quoted Malaysian pay of £3 per hour compared to the UK rate of £9 per hour sounds a far more plausible reason than being an IHT avoidance strategy.

Bostonerimus1

https://forums.moneysavingexpert.com/discussion/comment/82157892#Comment_82157892

When someones dies they no longer own the estate. The ownership must pass to other people or entities and that is regulated by civil law. Changes in ownership are generally taxed and that goes for IHT too. The basis of this taxation is the regulation of trade and the use of tax revenue for the common good.

Section62

https://forums.moneysavingexpert.com/discussion/comment/82158228#Comment_82158228

If they are making enough to pay the mortgage how would a change in land value bankrupt them?

Might bring them into negative equity, but thats the cost of making property affordable again.

Although long-term agricultural mortgages exist, farm finance typically involves a combination of commercial loans, overdrafts, and HP. These, even if not secured on the land itself, will be assessed on the viability of the farm as a business and the assets it holds.

If the principal business asset - the land - has significantly decreased in value then lenders will see their lending as higher-risk, and either offer less attractive terms, or simply refuse to lend.

If you've got a £100k 5-year loan coming to the end of term you need to be able to pay that money back. Typically by borrowing money in the form of a new loan. If you can't get the money in time, and the lender isn't willing to wait, then you go bankrupt.

Being able to service your debt is a fundamental of doing business. If there's a whiff of problems the credit lines can dry up faster than you can say "thats the cost of making property affordable again". If you aren't able to buy seed, fertiliser, chemicals, diesel, animal feed etc on credit, and nobody will lend you money, you no longer have a viable business. You go bankrupt.

This isn't unique to farming - all kinds of businesses (including factories) - have folded when lenders lost confidence in getting their money back.

So that real farmers have a chance of buying some land from tax avoiding £billionaire landowners posing as farmers.

If the policy objective is to allow new people to enter the farming industry, or to switch from renting to buying, the policy will fail.

As explained above, people hoping to become (/owner) farmers will rely on borrowing, unless they started wealthy. With experienced farmers going bankrupt as a result of falling land values, the banks are not going to lend to inexperienced farmers nor those who don't already have substantial capital of their own at risk.

Clarkson is the only one I can think of who openly admitted he put his money into agricultural land to avoid tax. The rest of them seem more
discreet about it. Especially when Clarkson was reminded of it when he was campaigning to keep the IHT exemption on Agricultural Land!!!

Clarkson is well known for making 'controversial' comments, not all of which are things he actually believes. It would be a mistake to base UK IHT policy on something he once said.

But whatever the reason for Dyson's move, doesn't alter the fact there is a very strong tax incentive to close UK factories etc and Invest in agricultural land instead. Which is what I said. Hardly a recipe for economic growth is it?

Cause and effect.

Is there any evidence to show that IHT policy on agricultural land is causing UK factories to close? It doesn't follow that people investing in agricultural land would invest in 'factories' instead.