Labour’s capitulation this week- raising the Agricultural Property Relief threshold from £1 million to £2.5 million after fourteen months of pressure – reveals the weakness of defending arbitrary numbers rather than principles.
This should matter to Liberal Democrats. We’ve opposed Labour’s reforms without offering an alternative. “Scrap the tax” isn’t liberal – it’s opposing for opposition’s sake. We’re ceding ground to Labour’s incoherent incrementalism and Conservative privilege defence.
The opportunity Labour has created
Labour doesn’t know what problem they’re solving. The threshold they inherited was unlimited. They proposed £1 million. Now it’s £2.5 million. They claim to protect “ordinary family farms” while targeting “the wealthy” – but can’t explain why the right number changed by 150%.
This creates space for Liberal Democrats to articulate principled reform. Not “tax more” or “tax less,” but “tax the right things for the right reasons.”
What we should be arguing
The real conflict isn’t “protect farmers versus raise revenue.” It’s tax dodgers versus working farmers.
Current Agricultural Property Relief gives 100% inheritance tax exemption to all agricultural land – whether farmed or held as a tax shelter. Wealthy investors buy farmland to save 40% on inheritance tax, inflating land prices and locking out genuine farmers.
A liberal approach distinguishes between productive farming and passive wealth. Tie relief to behaviour (actual farming), not asset class (land ownership). The mechanism: link inheritance tax relief to the percentage of income from farming. Work the land, pay nothing. Use it as a tax shelter, pay tax.
This protects working farmers better than Labour’s threshold – someone earning their living from agriculture pays nothing regardless of land value. And it removes the tax shelter incentive driving unaffordable land prices.
Why this matters for Liberal Democrats
We need to solve problems Labour can’t, using principles Conservatives won’t.
Labour responds to whoever shouts loudest. They’ve moved their threshold 150% because they couldn’t defend it. Unprincipled policy is unsustainable.
Conservatives defend the status quo – wealthy landowners are their base. They’ll frame reform as “attacking farmers” without distinguishing farmers from tax dodgers.
Liberal Democrats can say: “We’ll protect farmers who actually farm more generously than Labour, but won’t protect tax dodgers.” This positions us as more farmer-friendly than Labour, more principled than both parties, and distinctively liberal – targeting unearned privilege while rewarding productive enterprise.
The alternative to opposition
Rural seats matter to us. Many MPs represent farming constituencies. The easy path is blanket opposition – what we’re doing now.
But blanket opposition isn’t governing. When farmers ask, “What would you do instead?” we need an answer better than “keep the tax dodge destroying agricultural opportunity for your children.”
Articulating liberal reform means splitting the coalition between genuine farmers and tax avoiders. Working farmers benefit from lower land prices and targeted relief, even if wealthy landowners don’t. This requires confidence in our principles: no special privileges for asset classes, remove incentives for unproductive wealth storage, make farming accessible to the next generation.
What happens next
Labour has demonstrated weakness, spending fourteen months defending £1 million before retreating to £2.5 million. They’re vulnerable – rural MPs are restive, farmers angry, NFU knows the threshold can move again.
Conservative opposition is purely defensive – protect the status quo, offer no alternative.
Liberal Democrats can occupy the space neither party will: principled reform protecting working farmers while closing tax loopholes. That’s the liberal position. The question is whether we’re brave enough to make it.
For a look at how this policy would work in more detail, please visit my How to Actually Protect Farmers from Inheritance Tax Substack essay.
* Tanya Park is a Lib Dem County, Borough & Town councillor in Eastleigh, Hampshire and writes at A Just Society, a liberal policy project making the case for radical progressive policies grounded in liberal principles.
Follow @libdemvoice.org on Bluesky
Like us on Facebook
Subscribe to our feed
Sign-up for our daily email digest
I am liberal, woke and proud of it. We should all accept such descriptions with pride
The Joy of Six 1539
When the GIs came to Swansea
What's he got?
Latest voting intention and leadership ratings opinion polls
Anne Williams
Jana
Peter Martin
Carl Pierce
Roland
33 Comments
“ link inheritance tax relief to the percentage of income from farming.”
For a ‘principled position’, this still relies on an arbitrary figure – what proportion of income has to be generated by farming to avoid inheritance tax? A simple majority (51%), or 80%? 90%…
In addition to this, would such a policy not act as a disincentive to farmers diversifying? Suppose a farmer starts a small farming related business that proves to be successful…does that mean the farm part of his business should now face inheritance tax?
Overall, I don’t understand why we believe that a small business worth £2Million should be subject to inheritance tax but a small business worth £2 Million that happens to be a farm should not. The principle at play seems to be taking a position that will bolster our electoral support in rural areas.
@ Jenny Smith if you read the longer article linked at the bottom you’ll see that:
The percentage is directly linked to the tax you pay eg 90% farm income = 90% tax relief and income from diversification is also included in that calculation.
And I agree about your latter point also…do read the longer article linked at the bottom.
@Tanya Park
My apologies…I should have read the linked article first as it does address the points I have raised.
I’m impressed with the logic and practicality of what you propose. While I don’t agree that farming businesses should get special treatment compared to any other small family owned business, if we are to give farmers this benefit, your proposal appears the best way of doing it. I just wish there was a way of applying retrospective inheritance tax in situations where a family farm is inherited ‘inheritance tax free’ and thereafter sold for several millions for housing development.
Thank you Tanya for a great Lib Dem Voice article. I really feel as a party we haven’t been at our best on this issue.
I really hope more readers of Lib Dem Voice (and esp our parliamentary party) read your longer article in the ‘quiet’ period many people face between Christmas and New Year and reflect carefully on this issue.
excellent
“I just wish there was a way of applying retrospective inheritance tax in situations where a family farm is inherited ‘inheritance tax free’ and thereafter sold for several millions for housing development.”
This looks like a potential flaw in what would otherwise be a great policy idea. Could it be overcome, I wonder?
For example, would it be viable for HMRC to assess a farm estate for IHT in the normal way based on its full market value at death, THEN allow the inheritor a high rate of relief, but only PROVIDED the farm is to be retained as a farm. Also, HMRC would need a mechanism whereby IF the farm was then sold to a non-farmer, they could back-charge the full rate of IHT. Would that be workable?
Regardless of whether the land has been inherited, land being granted change of use should not add millions to its value. We need to reschedule a small part of our agricultural land for housing. That will give a few people a lot of money. Who it goes to is at best a lottery and at worst corrupting. There needs to be a way to take back enough of the gain that only just enough farmers have sufficient incentive to apply to satisfy our need for new homes. LVT does that. As a side effect, it would greatly reduce the speculative value of land and hence reduce inheritance tax liability on working farms.
Is there evidence that lots of farms are being bought by investors and then left unused (as opposed to being bought by investors who are mainly motivated by the land value/inheritance rules but who nevertheless do carry on running the business as a farm for the incremental extra revenue)? Wondering because any inheritance rules that rely on land use to decide whether a farm is liable for inheritance tax (as a proxy for exempting genuine family run farms) will fail to pick out the latter.
It’s worth noting that the current rules allow Capital Gains Tax to largely be avoided too, since the value of an asset is reset when inherited and no CGT is paid on any rise in value. This is fair enough when inheritance tax is payable, but when an asset is exempt it means the value of the land is likely to have increased massively since it was first bought but little or no CGT is ever paid.
If the aim is to grant a tax exemption to “family farmers” while cracking down on tax dodgers, then why not change the rules so that IHT is payable at 40% as with everything else, but liability for payment is deferred until the land or other business assets are sold. So if you inherit a farm and carry on farming it then you never pay, but if you cash in by selling some or all of the farming business you then pay tax at the same rate as everyone else?
A well thought through and sensible approach. Although we should aim for fairness, consistency and simplicity in our approach to tax.
How about forgetting all exemptions and just say iht liability arises on the value at death but is a lien not payment due on unrealised assets. So the beneficiary still retains use of the asset but “shares” ownership with the state. When the beneficiary sells the asset then the lien is paid off and also any capital gains tax paid on the value increase since the original death. This could then apply to all above the minimum threshold, which is a separate discussion, and not to have an exception for farmers.
I would prefer a percentage lien rather than cash value as that would address the overpricing of agricultural land by the perverse investment incentives.
We should be careful about bandying around phrases like “capitulation.” Liberal Democrats criticised the policy, called for change, got change, but are now saying that was capitulation!
I’m old enough to remember the Poll Tax (also forced through by a Government with an overall majority without enough thought or scrutiny). It was the refusal to ‘capitulate’ that caused so many problems for low income households, and in the end it had to be changed. Trouble is Council Tax which replaced it has never been revised since.
@Steve Comer – not all Liberal Democrats criticised the policy. Some of us supported it….
https://www.libdemvoice.org/lib-dem-mps-are-wrong-to-campaign-against-farming-inheritance-tax-changes-76567.html
The problem with the proposal is that currently farming is losing money. However farm diversification enterprises are not. I have just lost £20000 farming for the second year in succession, but my diversifications earn me enough to still pay income tax. I’.m not unusual; the statistics show that I am actually a typical farmer. Diversifications are rarely stand alone from the farming enterprise and can’t be sold off independently.
We should question capital taxes either as inheritance or wealth tax in principle. The UK economy is linked in to the global economy, but that does not allow us to tax overseas ownership of British assets. High taxes on our assets gives overseas owners a massive tax advantage. Do we really want an economy that is owned from abroad with our own residents left only as employees?
We should also realise that the perspective of all family businesses is multi-generational. Building up a strong rural business takes two or three generations. Things may move a bit quicker in other industries, but the same problem of selling off the business to pay the taxes applies.
Former leader Tim Farron is well versed on this issue and talks, if I remember correctly, of an “Active Farmer Clause” and a “Grandfather Clause.” I’m not sure of the details but the principle behind the former is fairly obvious and I think the latter means that inheritance tax becomes payable if and when the land is sold for other purposes.
What a pity then that so many farmers voted to leave the EU thus losing out when successive governments refused to honour their pledge to replace EU farming subsidies with UK ones.
I am sure that non-farmers would love to have a £2.5 million threshold for inheritance tax, a 20% tax rate and 10 years to pay, instead of a £350,000 threshold, a 40% tax rate that has to be paid immediately before anyone can access their inheritance. People who don’t enjoy such generosity may rightly be annoyed.
If the government genuinely wants to help real farmers, who grow food or raise animals, then there are better ways to go about it. IHT should be the same for everybody, but liability could be deferred/removed from family farms, where the farm is to continue in farming with the proviso that the minute the farm is sold for non-farming use, the tax becomes immediatly payable – including backdate amounts that were previously deferred.
Of course, we could campaign for a lifetime receipts tax…
“Tie relief to behaviour (actual farming), not asset class (land ownership). The mechanism: link inheritance tax relief to the percentage of income from farming. Work the land, pay nothing. Use it as a tax shelter, pay tax.”
Philip Bennion rightly points out that a temporarily loss-making real farmer, surviving through business diversification, would get clobbered for full IHT. That might be rectified by replacing “percentage of income” with “percentage of turnover”. Arguably, diversification when inextricably linked to the farm (e.g. B&B in converted barns) might also deserve a measure of IHT relief.
How might HMRC cope when Son the Inheritor declares an intention to carry on farming after Dad’s death, gets probate, but then reneges on his “promises”. Perhaps he sells out immediately to a rich overseas investor. Or perhaps the agricultural market slowly turns against him, and he gradually does less farming and more side hustles, before finally selling to a builder who implausibly claims he now wants to farm the new land. At what point should HMRC re-enter the fray, and how can they then know what IHT payment should validly be demanded?
Several posters have proposed plausible answers to this question, but might they all prove to be just too complicated, too administratively cumbersome, or too arbitrary to be workable?
There seems to be an assumption that at the death of a farmer, the two options are the heir and non-farmer. Some have noticed that heirs are not necessarily experienced and enthusiastic farmers (they may indeed be good at something else but be forced to give it up to maximise their inheritance). What nobody seems to mention is that a lot of people work the land without owning it. They will probably never get the chance to own their own farm because farms are priced as tax dodges and speculative investments. Perhaps it would be better if values fell and the children of farmers got a chance to live their own lives.
I think we’d all agree that we’d like our existing farmers to carry on farming. The system is offering them a very high cash inducement to quit though.
We’d probably all also agree that others who would like to farm should not be thwarted by very high land prices.
So how do we achieve what we want to achieve? We clearly cannot rely on market forces to deliver a good outcome.
This is a helpful contribution to a debate that has generated a great deal of heat and very little light. Restructuring capital taxes has to be the priority. However that is a long and complicated task. A Government with a huge majority should be doing just that, rather than blundering into yet another U turn.
A drop in land prices maybe of benefit to some but it will leave many in negative equity. It may also develop from being a recession into a depression. We have been there before. Land prices at the start of the Great Agricultural Depression in 1879 were higher than they were in 1939.
This is the most exciting thing I have read on LDV for some time-thank you Tanya!
I’m definitely with Tanya Park and Mick Taylor on this. The policy is very well fleshed out in the more detailed piece at the bottom of the original post ‘How to actually protect farmers from IHT’ and makes the ‘eligibility’ calculation stunningly simple.
It could make a great campaign.
So maybe we can change the usual system of LD policy making (convening a WG that takes 2 years to get something to Conference) and simply ask Tanya to stand up at Spring Conference and present this!
I think the closing date is horribly early in January …..
I’m afraid all these congratulations are a bit premature. It’s a great idea. I hope it can be made to work. But the devil is in the detail. Clever wheezes only help if they work in practice.
Philip Bennion pointed out that as currently drafted, this policy would charge the full unabated rate of IHT on any farm that was making a loss at the date of death. Maybe my amateur suggestion to replace “income” with “turnover” would help, maybe it wouldn’t. There are bound to be more snags to deal with before this broad-brush idea could be turned into workable policy.
Could a think-tank be persuaded to do the necessary critical review? Without that, this will just be one of those bright ideas that government will ignore.
“So how do we achieve what we want to achieve? We clearly cannot rely on market forces to deliver a good outcome.”
To answer my own question I would suggest that IHT be restored in full. The LibDem idea of introducing a LVT can be added too. This will help reduce the value of agricultural land and open up the possibility of farming to new entrants.
This doesn’t mean that farmers will be taxed out of existence, if the possibility of these taxes being paid by surrendering land ownership is allowed. Provision can be made to allow farmers to lease back the transferred land. It would mean, over time, that the operation would be valued on the farming business itself rather than the value of the land possessed.
The Lib Dems might well sing their anthem “The Land” which includes the words: “Why should we beg work and let the Landlords take the best? Make them pay their taxes for the Land—we’ll risk the rest; The Land was meant for the People!”
But do you really mean them?
Peter Martin’s trenchant post should give us all pause for thought. What do the Lib Dems really stand for? The national “Axe the Tax” campaign puts the party solidly in favour of harvesting rural votes, keeping land prices high, and doing nothing very effective to stop wealth accumulation and tax avoidance through land purchase. But the Liberal “The Land” anthem purports to place the party firmly on the opposite side of the argument. More than a whiff of hypocrisy, I fear.
Then along comes Tanya Park with what clearly aims to be a reasonable compromise proposal, if workable. Will the “axe the tax” national Lib Dems really want to buy it?
Let’s face it, farmers themselves aren’t likely to man the barricades in support. Right now, struggling farmers know that if all else fails, they could survive by selling up. For farmers, Tanya’s proposal is a double whammy. First, the sell-up option would bring back IHT. Secondly and more seriously, that would also bring down land prices, making a sell-up much less wealth-generating.
So, Lib Dems face a choice. Go for Tanya’s rational compromise, despite the complexity problems, despite the fact that farmers themselves won’t really much like it. Or just take the easy “axe the tax” line to win cheap votes. Answers on a postcard….
If Tanya’s proposal is a compromise, there must be at least a third option.
Peter Davies: The other main options are to charge full IHT on land and property (Peter Martin), or to allow limited relief on agricultural property (Labour).
@ David,
Just to clarify: I meant that IHT on agricultural being “charged in full” was on the basis of the original proposals as announced by this Government. The package was already generous and didn’t mean that the taxation rates would be the same as for other property and capital assets.
So, I’m not suggesting there should be no tax “relief on agricultural property”, though I do accept that this could be thought of as logical principled position.
It’s a question, practically, of just how much tax relief we should allow. We are all never going to agree on this though.
Three thoughts:
There needs to be a wider debate about land use – rural land in the UK could be used for any of the following (and in some cases combinations of some of them):
1 food production (UK currently produces abut 60% of the food it consumes). 100% self-sufficiency looks a very big ask to me.
2 leisure
3 biodiversity
4 cardon sinks
5 renewable energy production
6 development sites
Farming is incredibly capital intensive – even if you don’t own land. The cheapest combine harvester might set you back £250,000 new, probably more. Animals are cheaper of course. Hard to get a decent new tractor for less than £100,000 is my guess.
Almost all farmers are price takers – dependent on global markets. Unless you are on the best land it’s pretty hard to make a profit in the UK. Up to Brexit the profit of UK Agriculture plc was roughly equal to the subsidy paid out. It’s a tough old industry in the UK with our policy of cheap food and free trade..
” It’s a tough old industry in the UK with our policy of cheap food and free trade.”
Trade isn’t that free in agricultural produce.
We might not be in the EU Customs Union but UK tariffs aren’t significantly different to what they were before Brexit.
We probably could be self sufficient in food if we wanted to be. I find it hard to even give away apples from my garden in September! Maybe that would change if we really were short of food. 🙂
Farming is a tough old industry. Let’s not divert into all the trade-policy arguments. Farming is hard work, high risk, cold and wet, demanding. Though there are also a few important upsides. The possibility of one day making a killing by selling the land is one such upside.
Farmers are famously champion moaners. Farmers moan to tell everybody about the downsides, to hide the upsides, and to lobby furiously for a better deal. Far more than most, they know their livelihood depends on lobbying.
Tanya Park’s ideas would support farm-ing, not so much farm-ers. We do need to support farming. Climate change is hurting. It’s the major cause of food price inflation. When voters put “cost of living” as their top political issue, what they actually mean is “the effects of climate change”!
Putting more money into defence is supposed to mean buying bombs. It could be a better defensive priority to support farming and achieve the capability for food self-sufficiency.
“Work the land, pay nothing. Use it as a tax shelter, pay tax.”
Many of us would fully agree with this.
There’ll be some details to work out regarding just how ‘work the land ‘ will be defined. A wealthy landowner could draw a salary from a farming business having a nominal role as something like ‘financial advisor’. Would this count as working the land? What if they put a little more effort in and drove a tractor now and again?
Whatever is decided, you’d be challenging powerful vested interests. I’d not expect Lib Dems to do that.
‘One of Europe’s biggest private landowners, the Duke of Buccleuch & Queensbury owns a total of 240,000 acres. The duke has four splendid estates including the 90,000-acre Queensbury Estate in Dumfries and Galloway.’ He’s not likely to like what is being proposed especially if he is forced to milk cows to show he is a working farmer!
https://tlio.org.uk/the-uks-50-biggest-landowners-revealed-lovemoney-com/
“Inheritance tax” is not an inheritance tax, it’s an estate tax. The people who pay it are dead and hence by definition not “working farmers”. They may have no heirs or many. We should not be attempting to enforce primogeniture. All those heirs will be better off whether they inherit 100% of a farm with no IHT paid or a quarter of what’s left after IHT. We should not be feeling sorry for someone who has just received a small fortune just because they feel entitled to a large one. Nobody is being bankrupted here.
All of this has nothing to do with whether a particular area continues in farming. Land will continue to be farmed if it can generate more income than it costs (including an imputed cost of the farmer’s labour). If there are areas that are only being farmed because their current owner is undervaluing their own labour, there is no guarantee that an heir will feel the same way and it might make sense for them to end up socially maintained for public access and biodiversity or in a few cases sold for development. The loss of production would be negligible.
@ Peter ,
” The people who pay {IHT} are dead and hence by definition not “working farmers”..”
Typically, we can expect deceased farmers to have been retired, or semi retired, for 20 years or so, even if they have retained nominal ownership or the tenancy of their farms. So we should be enabling those who have been effectively working the farm during this period to continue to do so. If they are forced to move out for financial reasons we are losing valuable skills should be helping ensure the continuity of our food supply.
Also, we need to look at how the big landowners manage to avoid paying inheritance tax themselves.
As a socialist, I can’t see any real problem with the state owning land which can be accepted as an alternative to paying monetary taxes. The land can then be leased out at an affordable rates to farmers. According to a quick Google search, some 60% of agricultural land is already managed by tenant farmers.
According to this BBC report, some 65 eviction notices were issued to tenant farmers in Cumbria in one month alone.
This is a problem which should be included in the general discussion on how we support the agricultural sector of our economy.
https://www.bbc.co.uk/news/articles/c88z60y6yy1o