Thank you for watching, to see more of our work visit: ifs.org.uk/taxlab Timecodes: 00:00 Introduction 2:01 What is inheritance tax 4:23 What do other countries do? 6:40 Why is inheritance tax unpopular? 10:30 Threshold freezes 13:55 Changes to treatment of pensions 19:52 Farms 24:22 How many farmers will this affect? 27:40 Impact on family farms 33:20 Changes to business reliefs 35:28 Impact on businesses 41:30 Inheritance tax avoidance 45:36 Conclusion
I look forward to you having a farming discussion with, for example Harry Metcalf, - don't just sit there talking in a bubble, speak to those farmers competent enough to discuss the minutia of finances, instead of talking past one another, and publish the meeting for us all to see.
My Mum passed away recently. There was no IHT to pay. However, the IHT process, even when there is no tax to pay, is a bureaucrats wet dream. I had to fill in over 80 pages over 13 different forms just to show HRMC there was no tax to pay. Then wait for 16 weeks for probate office to do their thing before being able to sell her house etc. I do wonder if the admin costs of all of this are included in the calculations of how much IHT raises. Someone at HRMC had to check over those 13 forms and I suspect they are on a bit more than minimum wage.
I literally had to get my Dad's stamp collection valued for the "inventory" of his assets. Dread to think how much it would have cost if solicitors or a bank had been the executors. Was immediately obvious that there was no IHT due because my late mother's allowances also applied. Didn't stop the paperwork though. Lots and lots of paperwork.
@@asgggg3372 We had a will. Still had to fill in 80 pages over 13 pages for IHT 400 forms. You can do it yourself and have a few 45 call waits with HRMC like I did or you can pay a solicitor £10,000 or so to do it for you. Agreed with HRMC no tax payable and then they send the information over to probate and you wait. And wait. And wait. Eventually they send you the probate grant and you can start collecting the money and selling house etc. The whole process is a bureaucrats wet dream. You cant even send the forms over to HRMC online - you have to post them!
It's only recently pensions were a vehicle for "avoiding" IHT. The budget removed this IHT loophole for people who had probably been "middle income" earners but the loopholes for the "really high earners / rich " remain. It doesn't make a huge amount of sense.
I run a small private business that will need to pay inheritance tax. So if I die the only option is to close the business if my children can’t find a buyer to fund the inheritance tax. What happens to the employee jobs.
Are you intending to cling on to the business until the day you die? Never retiring? Or would you consider transferring your interest in the business to your children during your lifetime? If the latter you should be able to avoid your estate having to pay IHT. It's quite straightforward.
We can debate whether it is more or fewer than 500 farms a year that will be affected. However, I do not understand this argument beloved by the government that only X number will be affected, so therefore it’s okay. Is it okay to cause potentially 500 farms to be made unviable each year? Let’s say, it’s only 100. Is that okay? Let’s say (like the National Farmers’ Union) that it will be more. Would 1,000 farms being made unviable each year be okay? Whatever the number is, I don’t see how a policy that raises so little money can be justified by saying that it will only destroy X number of farms per year.
Yes, it's okay because this a tax policy, not an agricultural policy. It's about maximising tax revenue where possible. At the end of the day, the farm will still continue to be a farm if the family chooses to no longer be a farming family - others will take over the business.
If farms are unviable, then they are not being run efficiently. Any other inefficient business would go under. Why should inefficient farns be unfairly subsidised by other taxpayers paying more than they would otherwise have to ?
There is one very easy change that would make IHT seems much less unfair that you didn't mention. Currently HMRC demands you pay your IHT tax bill within 6 months of the date of death. If you don't, then interest is charged. Having just gone through the process, it would feel much fairer if this time limit was removed and instead the tax is payable at the point probate is granted. The grant can then be tied to the tax being deposited. Currently probate can take a year or more, and without it there are restrictions of what you can do with inherited assets (including restrictions on selling them to help pay the tax bill!)
Probate really is a joke. When I offered photo ID, the officer said they didn't need it. I could have been anybody, and completely unrelated to the deceased. Positively archaic !!
This all seems to make a very good case for abolishing IHT altogether or at the very least having it at a very low rate (say 5-10%) and abolishing the exemptions. I also take exception to the panel glibly stating that "it's only a few hundred people who will be affected". I am not a farmer, but I was brought up in a farming community. If I were one of those farmers, getting up at the crack of dawn to look after my animals, working 7 days a week, 52 weeks a year, struggling to keep my family farm afloat, hearing 3 highly educated individuals on a secure salary telling me that having to sell off the farm to pay IHT is OK because we're inefficient would really p*** me off! A bit of humility please! Economists considering only the big picture, and politicians who only care about issues that affect a large part of the electorate are conveniently forgetting the impact on the individuals involved. If you are one of those affected you must be in despair that so few of those in power or positions of influence actually care about you as an individual. The same comments apply about owners of family businesses built up over the generations. Politicians and those providing them with advice don't seem to care about the impact of their policies on the "little people". Paul, please remember the effect of policies on the individual. I'm sorry about the rant, as I enjoy most of the content of your output from IFS. Much of it makes great sense and has much to recommend it. But please remember that an economy is made up of and is sustained by the efforts of all those people "grafting at the coalface"!
Spot on, a lot of the discussion was based on cold calcius. Of those 'few' farming estates affected every year ...up to 500 it is likely to be devastating so over 10 years that's 5000 viable farming businesses torn apart. No doubt tax planning could help and certainly complicate things, but will not help those older or infirm who will not have time to take advantage of the 7 year rule bearing in mind the farming population has a very high age demographic. For a dedicated farmers son or daughter paying this tax amounts to having to buy a burden because your income is likely be below the repayment charges of the tax.
Just to add a note here that I haven’t seen anyone else mention regarding IHT (Inheritance Tax) allowances: An individual has a £325,000 IHT-free allowance. In addition, they have a £175,000 IHT-free allowance specifically for property. This means a couple can have a combined £1 million IHT-free allowance. However: If the total estate is worth over £2 million, for every £1 above this threshold, the property IHT allowance starts to reduce. For example, if the total estate is valued at £2.35 million, the £175,000 property allowance per person (a total of £350,000 for a couple) is entirely lost. In this case, the couple would only have a £650,000 IHT-free allowance remaining. Therefore, claiming that farmers have a potential £3 million IHT-free allowance can be a bit misleading.
It seems to be a bit of a bizarre argument that farmers and other business owners can just plan around this. If there are ways to plan around it, then what is the point in making these changes? It is only going catch out those who are too elderly or too sick to have time to do the appropriate planning. In other words, this becomes a tax on the frail. One solution would be to delay the introduction of these changes for seven years. This could be a convenient way for the government to escape from whole problem in any case, rather than making an embarrassing U-turn.
I think they really underplayed the upcoming increase in the percentage of estates that will pay inheritance tax in future. The freezing of thresholds (yet again!) is one big reason but they didn’t really quantify the impact of the (understandable) inclusion of DC pots inside estates. The previously quoted “only 4% of estates pay” was superseded by the Chancellor who quoted 6% of estates paying in the latest figures. I suspect the number will be close to 20% by the end of this decade. In the South, house prices will raise this even further……
Thoughtful discussion as always. I know it's a cliche but this stuff should really be taught in schools. It's frustrating how often politicians have to make inefficient decisions just to appease a poorly educated population.
IHT raises so little, causes so much grief, is totally pointless with so many reliefs which just funds a tax planning industry. Distorting farmland prices etc Just abolish it and save everyone wasting time, HMRC can spend what little resource of the regular set of taxes. Apply CGT at some rate or set of rates, indexed for inflation. Stop wasting time & energy.
Sadly, the government very foolishly ruled out taxes on the major taxes. I am a "working person " and would prefer 1% tax on the basic rate and reverse the Tory £20bn tax cut, on condition that we invest in growth and scrap Triple lock and Right to Buy.
@@bob1234881 70% of wealthy families will lose their wealth by the second generation and 90% will lose it by the third... The three generation curse. It is just stochastic who is rich at any particular time.
@@bob1234881people have the opportunity to earn and become wealthy themselves. It’s a tax of envy pretending to benefit the whole. In the end it drives wealthy away from the U.K., decreasing revenue and not benefiting the whole
IHT has needed an overhaul for a long time, so that everyone is treated fairly. I always recall covering the 5th Duke of Westminster who died in 1989, his estate was valued in excess of 5 billion but was only valued at 5 million for IHT. This was because of the large value of property held in trusts and the woodlands exemption. His successors have also benefited from this which seems inequitable. That’s without considering that not all wealth is earned by all, some wealth has been directly bequeathed from the monarchy to families, in lieu of their allegiance. The recent change to incorporate DC pensions also seems inequitable without considering the treatment of the different assets. Those in or preparing for retirement use pension pots to fund their living, with the inherent associated investment risks, whereas illiquid assets such as property are treated the same for IHT. A banding for each seems more equitable.
The money that needs to be raised isn't going to be taken from a single policy change, there are dozens of changes that all contribute, including IHT. I'm not really sure what your point is...? Do you think they'll just raise all funds from NI or VAT or something? 😕
Yes: it's ideological. Some ideology like "let's make the tax system make sense, let's make the economy more efficient, and let's crack down on tax avoidance."
Paul - I think that you almost brought yourself to say the logical thing - IHT should be abolished, and the UK should focus on taxing income properly. If this means higher marginal rates then so be it. But IHT, like CGT, will always require special treatments and distort decisions.
You’re talking about food security as though food is an infinite resource that can just appear! I really do appreciate the discussion because any information is essential to forming a balanced argument to make our country a fairer and more profitable place. However, I feel there is a lack of understanding around your concept of the value of farms. You clearly have no idea about the business of farming and have swallowed the numbers put out by the goverment. Context: I’m a fifth-generation farmer, so obviously, I’m going to have some bias. Suggesting that land, because it is more profitable for solar generation (not farming) or for businesses to offset carbon, should be considered for these alternatives. While it is undeniably more profitable, this perspective assumes society can survive solely on numbers generated by a calculator. If that were true, you’d be correct. But the nation can’t. Currently, the UK produces 60% of its own food, and this figure is expected to drop next year due to weather and the significant amount of land taken out of production for environmental schemes. (It’s a lot! These schemes are more profitable, especially when you don’t have to pay National Insurance contributions to staff the larger farms.) The Treasury’s numbers don’t stack up. Any viable farm is worth over £3 million-not just for the land but for the assets too. A cow is an asset. A tractor is an asset. A quad bike is an asset. It’s not just about the land and the home; it’s everything we work for. Unfortunately, the UK does an excellent job of devaluing the price of our produce with imports we can’t compete with (a topic for another time). As for arable farming, the machinery costs are immense-a single tractor can easily cost £250,000. The value adds up quickly. I think the treasury has forgotten the farms used business relief for its business and APR for the land and buildings. We are a hill farm in the Lake District. I’m 35, and my father is 71 (the average age of a UK farmer is 60). The average house price in my local village is £700,000, but the value of our home, land, and barns here does not reflect the viability of our business. If you factor in machinery and stock, even we are around the £3 million threshold. This value won’t decrease because of our location. I’ve heard arguments against large landowners, which I don’t agree with. Part of our farm is tenanted. The landowners are old aristocracy who have owned the land for over 500 years. This gives us security, knowing that whenever a lord dies, we don’t need to worry about a sell-off of the land. They think in terms of generations, not a quick profit. That long-term perspective is reassuring to a rural economy. Obviously, they have tax planning in place, but what if one dies unexpectedly without the required seven years' notice? This uncertainty applies to us and our landlord. I doubt either of us could pay the inheritance tax bill. The money in agriculture simply isn’t there-fact. And now, we have until April 2026 to sort it out. I hope my father lasts longer, but what if he doesn’t? Farms don’t generate enough revenue to pay such a tax bill, even with 10 years’ grace. We farm close to 250 acres year-round, with access to another 400 acres of fell in summer. We are custodians, managing the land for some of Britain’s most endangered species. I’ve heard some crazy ideas from postgraduates in environmental science about encouraging wildlife, but they often fail to consider that location matters. I know where the land floods and where the grass burns in summer. Timing is everything! I’ve worked for large companies and attended meetings where productivity is hindered by office politics and indecision. This is why small family farms are so effective. I discuss plans with my father and brother, and we get things done. None of us wants to ruin things for the next generation. We adapt! The question is: For food security, do you want to take the risk in an uncertain world? Do you want to be the ones who say, “Sorry, we can’t feed you because we sold the land to EDF or Lloyds (who are buying farms) and covered it in solar panels?”. This is not an industry our nation can live without (its not a iPhone we make). Do you want to trust it to the likes of big business? The idea that someone would spend more than £3 million to buy a farm and actually farm it is unrealistic, given the low returns. Instead, more farms will be bought by wealthy individuals who take money from environmental schemes without producing food. Not to mention the government is incentivising not farming over environmental schemes to hit net zero. Another consideration: What happens if we have to sell the farm? I’m already looking for other work, and it’s difficult due to our rural location. Jobs simply aren’t available here. Add in more displaced farmers-people who have only ever known farming-and the mental health consequences will be devastating. This is an ill-thought-out plan for a quick profit that will cost more in the long run. The timing is deliberate, targeting an ageing farming population. As for farms bought by people avoiding inheritance tax, I don’t have an answer. But that’s life-there will always be winners and losers. The challenge is finding balance. And none of this will matter if the nation starves. That’s what’s at stake, as agricultural policy remains baffling and a disaster.
Helen made an argument about distorting the ownership of businesses. However, reducing APR and BPR relief will actually the most powerful factor distorting the ownership because it will mean that companies that are on the stock exchange or owned by private equity have a massive advantage over family businesses. Family businesses will suffer losing a significant chunk of their capital every generation. Public businesses and those owned by private equity will not suffer losing a chunk of their capital every 20 to 30 years. Reducing APR and BPR relief is unfair on family businesses.
From $7k to $45k that's the minimum range of profit return every week I think it's not a bad one for me , now i have enough to pay bills and take care of my family.
IHT would be far more digestible if it wasn’t set at a punitive 40%. So,keep the nil rate band/resident nil rate band, and make IHT 10% for everyone NO EXCEPTIONS! Easy. 👍🏻
Great to see a calm and thoughtful debate about this matter. Thank you. One observation is that the difference between your analogy of the sentimental family house in London and the family farm is that the family house is a home and not a livelihood as well. Without the farm land the farmer has no job! Whereas the sale of the family house doesn't affect the livelihood of the children. I think the difference in the farm numbers affected - say between what HMRC say is about 500 farms to what CLA state as being closer to 70,000 farms maybe something to do with BPR relief which is also been affected by this budget. Farms are made up of more than just land - there is livestock, machinery, buildings and these can up to significant values (easily over £1m) and affect tenant family famers as well as owner occupied. Hence why I think it is important to look at the impact on family farms by not just taking into account the impact of the APR relief change but also the BPR relief change. Would you be able to look into this further to try and explain why there is such a disagreement over the number of farms affected? Also, if, as they state, Labour’s primary reason for scrapping the 100% IHT relief for farmers is to capture those non-farmers who have invested heavily in land as a way of avoiding IHT - giving them a generational tax shelter for their wealth - then why do they not amend the rules and grant 100% relief to those farmers who are farmers; by using the same eligibility criteria as would be used for a tenant farmer who wants to pass on his generational tenancy to the next generation? This would mean that only those farmers whose principal source of income (at least 50%) was earnt from farming the land out of at least 5 of the last 7 years prior to their death. As many land investors, such as James Dyson, Jeremy Clarkson, pension funds and so on, would not qualify under this criteria, they would not get IHT relief and so achieve Labour’s stated aims. Whereas the family generational farmer whose principal source of income is the farm, would.
It appears the Labour government have redesigned the inheritance tax exemptions re agricultural relief as an attack upon rural Britain who have little understanding of the impact , as per the recent DEFRA intervention to the Treasury, because the assets are not often realised by those who own / inherit them and it’s not only the farmer affected but those businesses who are dependent upon farming, re machinery dealers and agricultural agriculture merchants. Also the figures of who will be affected are distorted as per all the inheritance tax figures because the thresholds are being frozen whilst the assets are increasing in value, the stealth tax approach which political parties are now taking. The inheritance exemption for agriculture was brought in because the margins on the value of their assets were so low it was only families and their emotional attachment to the asset who would continue to run a business with such poor returns, family farms are inefficient because they often take an income which is relatively low, margin on a 500 acre farm is likely to be just over 50k when the assets are in excess of 6-7 million. It will also not affect those who it is claimed the changes are targeting re car journalists and vacuum manufacturers because they will employ tax avoidance measures which is why they bought agricultural land in the first place. Perhaps those wealthy landowners affected should declare themselves to be a monarch of their land and avoid tax like the Duchy estates, but that’s an altogether separate question which should be debated if the country needs wealthy individuals to pay more tax!!
Posted this last time but posting again because I'd love an answer! Please could you do an episode discussion Land Value Tax? Every time I hear an economist talk about it they seem to go all moon eyed, wax lyrical about how amazing that would be and what a shame it will never happen, and then move on to something else. Is it really that great and, if so, why haven’t we got one?
Will miss Paul, he's been a great voice for the IFS (as soon as you hear him, you know it's the IFS!) and a excellent voice for policies that are fairer in the round.
The overall effective rate on these family businesses will often be higher than 20%. When it comes to paying the IHT tax bill it will probably be necessary to take money out of the business in order to pay the bill. This is likely to give rise to dividends tax, CGT, or both of those. Overall, the loss to the family business may be in the ballpark of 40% of its value.
I think this discussion missed the point that farmers make use of BPR a great deal, not just APR. That is one of the reasons why the Treasury’s figures are so far out.
It is suggested that the farmers and other small business owners just use insurance to protect themselves. Unfortunately, paying such insurance until the day one dies is extremely expensive. Logically, the premiums paid by all those business owners are going to exceed what the insurance companies ever pay out. This is not a solution to the inheritance tax problem that they will face. Overall, it’s just a way for them to prepay the IHT years in advance and lose interest on all the money that they have given to the insurance companies as premiums in advance of their deaths.
The larger problem is that the value of farmland is no longer linked to its farming activities but as a tax avoidance scheme. Hopefully IHT will bring that inline. Time will tell if that means much lower farm values. Long term it will help real farming activities. However, I agree that some IHT exclusion should apply to farmers and landowners, not just landowners.
Massive drop in land values won't be great for a farmer who's got a mortgage or secured loan on their land. (Something that occasionally gets done to invest in buildings and/or equipment)
Business relief is likely to have a much larger impact on the employees of that business if the inheritance tax bill cannot be paid without selling the business
There seems to be an assumption that it is easy for the business owner to simply pass across ownership at least seven years before their death. However, in reality it is not so simple at all. There many tax, psychological and practical impediments. How can the owner know when they are going to die? How many years and what level of care costs are going to be required for the owner (and their spouse)? Does the owner trust their children (and their spouses)? What about the possibility of divorce or bankruptcy of one of the children? What about all the CGT repercussions of transferring before death (that could actually exceed the IHT problems)?
Hi Paul Johnson, one small issue comes to my attention and I would very much like to know the answer, my question is what percentage of farmers are owners of the land they use?, is it farmers you are talking about or landowners?. To the best of my knowledge relatively few people that actually work the land also own it, among those who do the farming there are some who do own some of the land they farm but also rent quite a lot. One way of settling this question for me would be to identify what proportion of agricultural land is owned by insurance companies, pension funds and other corporate bodies. Cheers, Richard.
Thank you for an informative presentation. A few points on the inheritance tax changes to defined contribution pension pots. First, you made no mention about the fact that for many people pots have already been taxed at the rate of 55% on the surplus above the previous limit when the pension was first crystallized (until Hunt recently changed the rules). So there are effectively, for those pensioners who have already paid income tax on crystallization, on the surplus above the limit, and survive beyond the age of 75 years , three means by which HMRC will levy tax i.e. on crystallization, on drawdown, and on their estate upon death when their heirs pay income tax at their marginal rates. Second, given for almost all pensioners in their sixties there is (without a diagnosis of terminal illness) actuarially a very wide range of possible ages at death, almost all will drawdown at a rate that it is likely to leave a substantial residue remaining upon death. Third, the Chancellor described the change to pension pots as closing a "loophole". It was not a loophole as it was explained by Osborne et al, at the outset, that being able to pass on the residue on the pot was one of the few advantages of having a defined contribution pension instead of a defined benefit pension. As we know most people outside the public sector were then are still not now able to join a defined benefit scheme.
Like VAT on schools the IHT on farms looks like a significant political mistake and risks angering another section of society which has not inconsiderable power
If the issue is about HNWI tax avoidance, how relevant is this as a target when it only represents 1700 applications for the IHT relief; and what is the total value of these 1700 applications for tax relief. In fact the whole of this IFS discussion is a little skewed because it suggests that people starting a pension or everyone starting a business is somehow doing it all for tax avoidance purposes- I’d suggest that is a distortion of why people start a business or a pension. The fact is IHT is a regressive tax predicated on a view that people should not benefit without taxation! For me, the first point matters, the current Gov’t are swimming against the tide; when the world is moving away from death tax to the realisation that a wealthier population inevitably creates more internal investment in a country.
surprised that "an inherited house in London" is flippantly compared to a family farm. The inheritance of a home you don't live in can be classed as a windfall just like cash. A family farm that is worked by members of the family which is their livelihood is in no way comparable. Townies don't get the country.
I own a family construction business that will be greatly affected by this. What incentive is there for me to keep investing in the business to increase its value when my children, who I hope will be involved at some point, will simply have to pay more tax because of it? Why should I invest in new plant and equipment or refurbish the head office or start new subsidiary businesses or even increase the turnover, when all these will increase the IHT charge? I might as well rinse the business, give the money to my children and eventually run it right down.
you make an excellent case for how the UK's obsession with "small" and "family" businesses holds back our productivity and why we should end all special consideration to these businesses. thank you.
What is the difference between employers nat ins rates in 2022 and rates proposed for 2025? Please ignore employee nat ins. I want to understand why GPs are moaning now?
You said a couple can pass on the assets. My mother is still alive but my father died 30yrs ago. Surely this means the additional £175k tax relief you mentioned is not added on to the net estate assets as my mother is not “ a couple “ ? I’m assuming her “ single allowance “ is still £325k.Her home is valued @ £600k plus £50k in savings so deduct the £325k from the £650k net assets that means a tax bill of : £130k @ 40%. I think we can use my late fathers IHT allowance but this is very time consuming as previous comments has shown.
They have made a valiant attempt to understand the APR/BPR issues, but I’m afraid to say that it is a very complicated area and many key aspects have been overlooked. Planning around the announced changes is difficult in many cases. Gifting is tricky and can end up more expensive than the 20% IHT.
It really needs a group of decades-experienced estate planning tax lawyers to discuss these topics. I guess that now such people are too busy enjoying the influx of business these (putative) changes have stimulated!
Forecast tax increases everywhere, when will the honest questions about spending be reviewed? Increasing taxes on businesses and people is a form of Austerity.
I understand that a member of the IFS was the author of removing the IHT relief as he didn't believe in families running farms. Is that gentleman aware that one of the biggest failures of Communist Russia was the state owned agriculture? Is that gentleman so happy that UK food security can be compromised and if so what exactly is his agenda in the long run?
Yes, Arun Advani is the academic who has pushed this via the IFS and his own 'think tank' vehicles. He's also on the board of the OBR. So he has pushed the idea to the Government, then he's involved in judging their performance via the OBR, then his mates at the IFS help to make his suggestion seem reasonable. Interesting!
@@VictoriaBeverley Well his suggestion isn't reasonable and along with that fool Milliband is compromising Britain's security on a scale not seen since WW2. Putin must love those two clowns.
David questioned why people receive IHT mitigation on ownership of AIM shares, but perhaps it is better to see it from the point of view of the need to support small British companies. We have SEIS supporting seed funding of companies, EIS and VCT for early-stage funding, and then for those that make it to IPO there are incentives to invest in AIM shares (IHT relief and exemption from stamp duty). From that point of view, the IHT relief on AIM shares makes a lot of sense and it is shame that it has reduced from full relief as this will result in less investor support for capital raising due to reduced incentive.
Why doesn't anyone discuss agricultural ties to land, why it exists, and why it is important? The production of food is vital as 60% of food consumed in the UK is produced in the UK. Why then tax the main ingredient of food production, land. This will increase the cost of food production.
Paul says that as many assets as possible should be treated similarly by IHT. Agreed. It makes sense for APR and BPR to be treated in the same way. (NB farmers use BPR a lot.) Any resolution to the farmers’ complaints must also apply to other family businesses so the benefits are spread evenly. If agricultural assets were to get a better deal, then even more money will flow across to those.
Can someone please talk about the biggest exception to the inheritance tax, being the monarch. The British people should demand that the monarch pays inheritance tax like the rest, the broadest shoulders…
We are now going to try and tax business assets……so let’s get all businesses to pay IHT ……. Businesses should not pay inheritance tax (IHT)-this tax shouldn’t exist. Imagine TESCO having to pay a 20% tax when their CEO dies! Why should family-run firms bear that burden while large corporations, like those owned by private equity, simply don’t have to? Let’s get TESCO to pay 20% first. We need a tax system that encourages businesses but clamps down on avoidance, and this isn’t it. Labour clearly has no clue.
tesco do have to pay IHT in a sense, when their shareholders die with assets over the limit. sorry, but frankly too bad. you have to pay the tax like everyone else
Given IHT raises relatively little (0.7%), and also - thank you for pointing this out - the UK has a relatively night IHT rate and threshold, and many countries have actually abolished it in recent years - can we ask why this government has decided to change the rules so more assets are included in the taxable estate? Essentially it’s a left-wing, ideologically-driven envy tax. Was this flagged in the Labour manifesto?
We are over two weeks since the Budget, there is no more learned authority than the IFS, yet there is still a total misunderstanding of impact on farms of the budget. Farmers are hit by the changes both of APR and BPR. Under these new proposals I as a 78 year old farmer would not only pay 20% tax on my farm land which goes back over 200 years but BPR on 3000 tons of potatoes grown this year and the cold stores which hold them safe not forgetting the £600,000 combine bought last year. I expect more from the IFS that parroting the Government's misinformation. I have my son and 24 year old grandson working with me, we collectively face not just one but two impacts from the combined APR and BPR changes. We are not a big farm but we will need luck to survive as a business. The IFS needs to look again at the true impact on farmers.
Instead of the difficult and sometimes hard work of being creative and growing new industries, they attack heritage existential industries. The weak budget is obviously flawed. the new list: no families, no farmers, no food, no future.
As a farmer of a family farm with 170 hectares and a few other assets my son will be looking at £830000 tax . We make on good year £40000 profit how can he pay that bill
if you're clearly unwilling to do the obvious things to reduce IHT, he can't. he'll have to sell the asset he may have an emotional attachment to, just like everyone else. sorry but frankly too bad, farmers are not special.
At 24 minutes, the discussion about farms misses the major point that farmers are cash-poor and they cannot pay the tax due in barrow loads of soil and "fertiliser".... So, farms will have to be sold. Farms will accumulate in large conglomerate farms.... What could possibly go wrong with that? Thank you for raising the cash matter later in your discussion. Why is the government taxing death?
Never, ever trust HMT figures or arguments. I’ve personally spent more time trying to push back on the envy tax on education rather than farming, but my experience is that HMT is staffed by low quality individuals - presumably “working from home” for a very unreasonable five days per week
The assumption that everyone csn plan away the problem including gifting is full of flaws. There may be insufficient time to evade the 7 years rule. Gifting out of excess income doesn't work if the income is insufficient. Farming is often 1% income of the asset value. Pensions shouldn't be drawn at greater than 4% according to general IFA guidance without risking the capital running out before death. Similarly for small business income. How can you gift if you are reliant on the capital to generate the income. I think the panel clearly believes all wealth should disappear at death. Finally all of the estimates if who will be impacted are based on historical estate claims. These were made under the old rules and where's the projection for fiscal drag caused by freezing limits and inflammation. Ie how soon before someone only in receipt of the state pension will pay income tax. The government taxing itself is the result and it's only single digit years in the future! That's how poorly these numbers have been considered. Oh and let's give this money to the currently in efficiently run state organisations like the NHS who need help and reform to spend wisely first.
Wow that’s a very skewed perspective on farms, the issue is not how many farms are impacted each year, the issue is what percentage of the overall number of commercially viable farms that are impacted over time I.e. is it 1%, 10%, 50% of all farms and its not just the house and land that’s the issue if you look at the equipment that farms have, this is very considerable part of the value of a farm. In addition to this, we need to understand why we have farms and what the consequence of the tax change is. It is a national food security issue and as a country surely we should consider this as well as the climate considerations around food miles that could be avoided. Finally I think the way the government has treated the concerns of farmers is reprehensible, effectively just telling farmers they are wrong and should go do some proper tax planning is dismissive at best and actively rude at worst
farmers should not receive special treatment just because they decided they preferred a different career. there should be no exemption for farmers at all.
As usual from the IFS. They do their best to appear neutral, but in the end socialist tendencies emerge by not fully exploring the pro-business wealth-creator perspective.
I have been an avid watcher of this channel and normally find it very informative and clears up the lies that politicians of both sides make. Today I feel that you have either deliberately or by naivety have mis-understood or formed a very biased narrative about farming. Firstly you quote figures comparing farmers affected to the general public, and deaths being only 0.1% of total deaths, surely you should be comparing deaths of farmers to people paying inheritance tax and I am certain that figure will not be 0.1%. The NFU have said this will affect 70,000 farms, which is the majority of farms in the UK, show me any other industry where the majority will need to pay inheritance tax. I suspect you won’t unless you count hedge fund managers as an industry, and even they will not pay it one way or another. You talk about emotional attachment to the land and compare it to houses in London. Again show me the percentage of home owners who have lived in the same home for 5 or more generations. I suspect there will be extremely few, whereas farming is seen as a multi generational occupation. Currently farming is massively more regulated than virtually any other industry, we can buy OSR from the continent but farmers in the UK aren’t allowed to sow the same seed. Farming is not like other industries, if it were we would have no hedges and there would be large fences keeping people out. I am sure you have watched clarkson’s farm and can see all the issues farming has had to put up with and this government is only making it worse. I hat inheritance tax, for me it is morally bankrupt, but I can accept it if our apartment in Convent Gardens has gone up by several hundred percent, but taxing farmers who have had their farm for generations and had hoped their future generations will farm the land is more than morally bankrupt.
"Home owners who have lived in the same home for 5 ... generations." Precisely. Non-farmers (most of them) have to sell their familly homes. Farmers have been in a privileged position for centuries, whereby they do not have to. By paying less than their fair share of tax, they make the rest of the population pay more. THAT is unfair !
@ I love your their fair share of tax. Britain has the cheapest food in the western world. A current farm worth over £5 million makes about £32,000 this year and £-16,000 last year. If you social warriors want to just screw farmers then we end up with the US farms, where animal husbandry is very must a last thought , they keep their chicken so badly you have to chlorinate their chicken and wash eggs and keep them refrigerated. Next time I am around your house just watch me walk across your garden and demand you maintain a path. You look out and see nice field with hedges, well someone pays for that and is sure as hell isn’t you. Farmers in the UK have to compete on a world market where say in Europe they are allowed to plant treated OSR, but not in the UK, Australian and New Zealand farmers are allowed to pump hormones into their cattle, UK they are not. If you want to tax people for social justice. Just look out for what you will get higher food costs and lower quality. Up the revolution brother.
@@MrJudgementday99 None of this has anything to do with paying a fair share of tax. Plenty of other people have their woes, and difficulties in earning a living. Why should some be liable for inheritance tax, but not others ? Who else gets a huge handout when there's an outbreak of foot and mouth disease, or bird flu ? Who else gets public money to go around killing badgers, because they won't have their animals vaccinated ? Don't give me all that guff about feeding the country, when there are fields full of rape, flax and solar panels. Who eats those ? BTW, I lived in a house with a footpath running through the garden, and I maintained it.
Lack of knowledge on the panel of the real world impacts and this poor mindset is hurting the UK economy. This is the reason why so many talented people are leaving the UK to places like Dubai! Hence, the tax increase will leave to brain drain and poor tax receipts!
You can slow the playback speed in RUclips options if you're struggling to keep up. I actually quite like it when there's somebody on that speaks faster, I don't have to increase playback when listening then :D
Can someone please talk about the biggest exception to the inheritance tax, being the monarch. The British people should demand that the monarch pays inheritance tax like the rest, the broadest shoulders…
Thank you for watching, to see more of our work visit: ifs.org.uk/taxlab
Timecodes:
00:00 Introduction
2:01 What is inheritance tax
4:23 What do other countries do?
6:40 Why is inheritance tax unpopular?
10:30 Threshold freezes
13:55 Changes to treatment of pensions
19:52 Farms
24:22 How many farmers will this affect?
27:40 Impact on family farms
33:20 Changes to business reliefs
35:28 Impact on businesses
41:30 Inheritance tax avoidance
45:36 Conclusion
I look forward to you having a farming discussion with, for example Harry Metcalf, - don't just sit there talking in a bubble, speak to those farmers competent enough to discuss the minutia of finances, instead of talking past one another, and publish the meeting for us all to see.
@@41istair I agree. There is not enough representation of all the counterarguments to the APR/BPR relief reduction in this discussion.
My Mum passed away recently. There was no IHT to pay. However, the IHT process, even when there is no tax to pay, is a bureaucrats wet dream. I had to fill in over 80 pages over 13 different forms just to show HRMC there was no tax to pay. Then wait for 16 weeks for probate office to do their thing before being able to sell her house etc. I do wonder if the admin costs of all of this are included in the calculations of how much IHT raises. Someone at HRMC had to check over those 13 forms and I suspect they are on a bit more than minimum wage.
Yes, it's an arduous process which I have gone through three times. And completely unnecessary in all three cases.
I literally had to get my Dad's stamp collection valued for the "inventory" of his assets. Dread to think how much it would have cost if solicitors or a bank had been the executors.
Was immediately obvious that there was no IHT due because my late mother's allowances also applied.
Didn't stop the paperwork though. Lots and lots of paperwork.
@@grahamleiper1538 Same here.
@@Leapops doesn’t having a will in place avoid all of this time and paperwork?
@@asgggg3372 We had a will. Still had to fill in 80 pages over 13 pages for IHT 400 forms. You can do it yourself and have a few 45 call waits with HRMC like I did or you can pay a solicitor £10,000 or so to do it for you. Agreed with HRMC no tax payable and then they send the information over to probate and you wait. And wait. And wait. Eventually they send you the probate grant and you can start collecting the money and selling house etc.
The whole process is a bureaucrats wet dream. You cant even send the forms over to HRMC online - you have to post them!
It's only recently pensions were a vehicle for "avoiding" IHT. The budget removed this IHT loophole for people who had probably been "middle income" earners but the loopholes for the "really high earners / rich " remain. It doesn't make a huge amount of sense.
I run a small private business that will need to pay inheritance tax. So if I die the only option is to close the business if my children can’t find a buyer to fund the inheritance tax. What happens to the employee jobs.
Are you intending to cling on to the business until the day you die? Never retiring? Or would you consider transferring your interest in the business to your children during your lifetime?
If the latter you should be able to avoid your estate having to pay IHT. It's quite straightforward.
We can debate whether it is more or fewer than 500 farms a year that will be affected. However, I do not understand this argument beloved by the government that only X number will be affected, so therefore it’s okay.
Is it okay to cause potentially 500 farms to be made unviable each year? Let’s say, it’s only 100. Is that okay? Let’s say (like the National Farmers’ Union) that it will be more. Would 1,000 farms being made unviable each year be okay? Whatever the number is, I don’t see how a policy that raises so little money can be justified by saying that it will only destroy X number of farms per year.
Yes, it's okay because this a tax policy, not an agricultural policy. It's about maximising tax revenue where possible. At the end of the day, the farm will still continue to be a farm if the family chooses to no longer be a farming family - others will take over the business.
@ rubbish
As I understand it the NFU don't represent small farmers but large corporate interests like Tate and Lyle. Is that correct?
If farms are unviable, then they are not being run efficiently. Any other inefficient business would go under. Why should inefficient farns be unfairly subsidised by other taxpayers paying more than they would otherwise have to ?
@@grahamtravers4522 How many people do you know who don't eat food? Some businesses are worth supporting. Food security for the nation is important.
There is one very easy change that would make IHT seems much less unfair that you didn't mention. Currently HMRC demands you pay your IHT tax bill within 6 months of the date of death. If you don't, then interest is charged. Having just gone through the process, it would feel much fairer if this time limit was removed and instead the tax is payable at the point probate is granted. The grant can then be tied to the tax being deposited. Currently probate can take a year or more, and without it there are restrictions of what you can do with inherited assets (including restrictions on selling them to help pay the tax bill!)
Probate really is a joke. When I offered photo ID, the officer said they didn't need it. I could have been anybody, and completely unrelated to the deceased. Positively archaic !!
This all seems to make a very good case for abolishing IHT altogether or at the very least having it at a very low rate (say 5-10%) and abolishing the exemptions.
I also take exception to the panel glibly stating that "it's only a few hundred people who will be affected". I am not a farmer, but I was brought up in a farming community. If I were one of those farmers, getting up at the crack of dawn to look after my animals, working 7 days a week, 52 weeks a year, struggling to keep my family farm afloat, hearing 3 highly educated individuals on a secure salary telling me that having to sell off the farm to pay IHT is OK because we're inefficient would really p*** me off! A bit of humility please!
Economists considering only the big picture, and politicians who only care about issues that affect a large part of the electorate are conveniently forgetting the impact on the individuals involved. If you are one of those affected you must be in despair that so few of those in power or positions of influence actually care about you as an individual.
The same comments apply about owners of family businesses built up over the generations. Politicians and those providing them with advice don't seem to care about the impact of their policies on the "little people". Paul, please remember the effect of policies on the individual.
I'm sorry about the rant, as I enjoy most of the content of your output from IFS. Much of it makes great sense and has much to recommend it. But please remember that an economy is made up of and is sustained by the efforts of all those people "grafting at the coalface"!
Spot on, a lot of the discussion was based on cold calcius. Of those 'few' farming estates affected every year ...up to 500 it is likely to be devastating so over 10 years that's 5000 viable farming businesses torn apart. No doubt tax planning could help and certainly complicate things, but will not help those older or infirm who will not have time to take advantage of the 7 year rule bearing in mind the farming population has a very high age demographic.
For a dedicated farmers son or daughter paying this tax amounts to having to buy a burden because your income is likely be below the repayment charges of the tax.
Just to add a note here that I haven’t seen anyone else mention regarding IHT (Inheritance Tax) allowances:
An individual has a £325,000 IHT-free allowance.
In addition, they have a £175,000 IHT-free allowance specifically for property.
This means a couple can have a combined £1 million IHT-free allowance. However:
If the total estate is worth over £2 million, for every £1 above this threshold, the property IHT allowance starts to reduce.
For example, if the total estate is valued at £2.35 million, the £175,000 property allowance per person (a total of £350,000 for a couple) is entirely lost. In this case, the couple would only have a £650,000 IHT-free allowance remaining.
Therefore, claiming that farmers have a potential £3 million IHT-free allowance can be a bit misleading.
It seems to be a bit of a bizarre argument that farmers and other business owners can just plan around this. If there are ways to plan around it, then what is the point in making these changes? It is only going catch out those who are too elderly or too sick to have time to do the appropriate planning. In other words, this becomes a tax on the frail. One solution would be to delay the introduction of these changes for seven years. This could be a convenient way for the government to escape from whole problem in any case, rather than making an embarrassing U-turn.
Yes, it will catch out the elderly, those with a terminal disease and also those who are averse to spending their time and their money on lawyers.
I think they really underplayed the upcoming increase in the percentage of estates that will pay inheritance tax in future. The freezing of thresholds (yet again!) is one big reason but they didn’t really quantify the impact of the (understandable) inclusion of DC pots inside estates. The previously quoted “only 4% of estates pay” was superseded by the Chancellor who quoted 6% of estates paying in the latest figures. I suspect the number will be close to 20% by the end of this decade. In the South, house prices will raise this even further……
Thoughtful discussion as always. I know it's a cliche but this stuff should really be taught in schools. It's frustrating how often politicians have to make inefficient decisions just to appease a poorly educated population.
Nah ! It's more important to teach children about the Wild West, these days ...
IHT raises so little, causes so much grief, is totally pointless with so many reliefs which just funds a tax planning industry. Distorting farmland prices etc Just abolish it and save everyone wasting time, HMRC can spend what little resource of the regular set of taxes. Apply CGT at some rate or set of rates, indexed for inflation. Stop wasting time & energy.
Sadly, the government very foolishly ruled out taxes on the major taxes. I am a "working person " and would prefer 1% tax on the basic rate and reverse the Tory £20bn tax cut, on condition that we invest in growth and scrap Triple lock and Right to Buy.
But then that will mean generational gip will increase to those that get given vs those that don't.
@@bob1234881 70% of wealthy families will lose their wealth by the second generation and 90% will lose it by the third... The three generation curse. It is just stochastic who is rich at any particular time.
The best comment ever, well done!
@@bob1234881people have the opportunity to earn and become wealthy themselves. It’s a tax of envy pretending to benefit the whole.
In the end it drives wealthy away from the U.K., decreasing revenue and not benefiting the whole
IHT has needed an overhaul for a long time, so that everyone is treated fairly.
I always recall covering the 5th Duke of Westminster who died in 1989, his estate was valued in excess of 5 billion but was only valued at 5 million for IHT. This was because of the large value of property held in trusts and the woodlands exemption. His successors have also benefited from this which seems inequitable. That’s without considering that not all wealth is earned by all, some wealth has been directly bequeathed from the monarchy to families, in lieu of their allegiance.
The recent change to incorporate DC pensions also seems inequitable without considering the treatment of the different assets. Those in or preparing for retirement use pension pots to fund their living, with the inherent associated investment risks, whereas illiquid assets such as property are treated the same for IHT. A banding for each seems more equitable.
If the change to inheritance tax isn't going to raise massive amounts, then it must be an ideological decision on the part of the government.
The money that needs to be raised isn't going to be taken from a single policy change, there are dozens of changes that all contribute, including IHT. I'm not really sure what your point is...? Do you think they'll just raise all funds from NI or VAT or something? 😕
@@jme_athe point I believe they are making is that the Labour Party is just applying the tax as a punitive tax because they hate family farms
Yes: it's ideological. Some ideology like "let's make the tax system make sense, let's make the economy more efficient, and let's crack down on tax avoidance."
Yes, the ideology is FAIRNESS.
@@geoffnewman3109 It is definitely Double Taxation that can not be defended by one of the principals (as they are already deceased); is this fair ?
Paul - I think that you almost brought yourself to say the logical thing - IHT should be abolished, and the UK should focus on taxing income properly. If this means higher marginal rates then so be it. But IHT, like CGT, will always require special treatments and distort decisions.
You’re talking about food security as though food is an infinite resource that can just appear!
I really do appreciate the discussion because any information is essential to forming a balanced argument to make our country a fairer and more profitable place. However, I feel there is a lack of understanding around your concept of the value of farms. You clearly have no idea about the business of farming and have swallowed the numbers put out by the goverment.
Context: I’m a fifth-generation farmer, so obviously, I’m going to have some bias.
Suggesting that land, because it is more profitable for solar generation (not farming) or for businesses to offset carbon, should be considered for these alternatives. While it is undeniably more profitable, this perspective assumes society can survive solely on numbers generated by a calculator. If that were true, you’d be correct. But the nation can’t. Currently, the UK produces 60% of its own food, and this figure is expected to drop next year due to weather and the significant amount of land taken out of production for environmental schemes. (It’s a lot! These schemes are more profitable, especially when you don’t have to pay National Insurance contributions to staff the larger farms.)
The Treasury’s numbers don’t stack up. Any viable farm is worth over £3 million-not just for the land but for the assets too. A cow is an asset. A tractor is an asset. A quad bike is an asset. It’s not just about the land and the home; it’s everything we work for. Unfortunately, the UK does an excellent job of devaluing the price of our produce with imports we can’t compete with (a topic for another time). As for arable farming, the machinery costs are immense-a single tractor can easily cost £250,000. The value adds up quickly. I think the treasury has forgotten the farms used business relief for its business and APR for the land and buildings.
We are a hill farm in the Lake District. I’m 35, and my father is 71 (the average age of a UK farmer is 60). The average house price in my local village is £700,000, but the value of our home, land, and barns here does not reflect the viability of our business. If you factor in machinery and stock, even we are around the £3 million threshold. This value won’t decrease because of our location.
I’ve heard arguments against large landowners, which I don’t agree with. Part of our farm is tenanted. The landowners are old aristocracy who have owned the land for over 500 years. This gives us security, knowing that whenever a lord dies, we don’t need to worry about a sell-off of the land. They think in terms of generations, not a quick profit. That long-term perspective is reassuring to a rural economy. Obviously, they have tax planning in place, but what if one dies unexpectedly without the required seven years' notice? This uncertainty applies to us and our landlord. I doubt either of us could pay the inheritance tax bill. The money in agriculture simply isn’t there-fact. And now, we have until April 2026 to sort it out. I hope my father lasts longer, but what if he doesn’t? Farms don’t generate enough revenue to pay such a tax bill, even with 10 years’ grace.
We farm close to 250 acres year-round, with access to another 400 acres of fell in summer. We are custodians, managing the land for some of Britain’s most endangered species. I’ve heard some crazy ideas from postgraduates in environmental science about encouraging wildlife, but they often fail to consider that location matters. I know where the land floods and where the grass burns in summer. Timing is everything! I’ve worked for large companies and attended meetings where productivity is hindered by office politics and indecision. This is why small family farms are so effective. I discuss plans with my father and brother, and we get things done. None of us wants to ruin things for the next generation. We adapt!
The question is: For food security, do you want to take the risk in an uncertain world? Do you want to be the ones who say, “Sorry, we can’t feed you because we sold the land to EDF or Lloyds (who are buying farms) and covered it in solar panels?”. This is not an industry our nation can live without (its not a iPhone we make). Do you want to trust it to the likes of big business?
The idea that someone would spend more than £3 million to buy a farm and actually farm it is unrealistic, given the low returns. Instead, more farms will be bought by wealthy individuals who take money from environmental schemes without producing food. Not to mention the government is incentivising not farming over environmental schemes to hit net zero. Another consideration: What happens if we have to sell the farm? I’m already looking for other work, and it’s difficult due to our rural location. Jobs simply aren’t available here. Add in more displaced farmers-people who have only ever known farming-and the mental health consequences will be devastating.
This is an ill-thought-out plan for a quick profit that will cost more in the long run. The timing is deliberate, targeting an ageing farming population. As for farms bought by people avoiding inheritance tax, I don’t have an answer. But that’s life-there will always be winners and losers. The challenge is finding balance. And none of this will matter if the nation starves. That’s what’s at stake, as agricultural policy remains baffling and a disaster.
Well said, you said, eloquently, what I was thinking...3rd generation farmer😊
Thank you, I could have gone on a lot more.
Helen made an argument about distorting the ownership of businesses. However, reducing APR and BPR relief will actually the most powerful factor distorting the ownership because it will mean that companies that are on the stock exchange or owned by private equity have a massive advantage over family businesses. Family businesses will suffer losing a significant chunk of their capital every generation. Public businesses and those owned by private equity will not suffer losing a chunk of their capital every 20 to 30 years. Reducing APR and BPR relief is unfair on family businesses.
Yes!
From $7k to $45k that's the minimum range of profit return every week I think it's not a bad one for me , now i have enough to pay bills and take care of my family.
Could you please explain how beginners like me can start making this much.
Last week I tried trading on my own and ended up losing $4k
I have Evelyn Infurna to Thank
she is a licensed broker here in the state.
YES, That is exactly her name and also many people speaks highly about her . she is an expert and am just starting with her.
IHT would be far more digestible if it wasn’t set at a punitive 40%. So,keep the nil rate band/resident nil rate band, and make IHT 10% for everyone NO EXCEPTIONS! Easy. 👍🏻
Great to see a calm and thoughtful debate about this matter. Thank you. One observation is that the difference between your analogy of the sentimental family house in London and the family farm is that the family house is a home and not a livelihood as well. Without the farm land the farmer has no job! Whereas the sale of the family house doesn't affect the livelihood of the children.
I think the difference in the farm numbers affected - say between what HMRC say is about 500 farms to what CLA state as being closer to 70,000 farms maybe something to do with BPR relief which is also been affected by this budget. Farms are made up of more than just land - there is livestock, machinery, buildings and these can up to significant values (easily over £1m) and affect tenant family famers as well as owner occupied. Hence why I think it is important to look at the impact on family farms by not just taking into account the impact of the APR relief change but also the BPR relief change. Would you be able to look into this further to try and explain why there is such a disagreement over the number of farms affected?
Also, if, as they state, Labour’s primary reason for scrapping the 100% IHT relief for farmers is to capture those non-farmers who have invested heavily in land as a way of avoiding IHT - giving them a generational tax shelter for their wealth - then why do they not amend the rules and grant 100% relief to those farmers who are farmers; by using the same eligibility criteria as would be used for a tenant farmer who wants to pass on his generational tenancy to the next generation? This would mean that only those farmers whose principal source of income (at least 50%) was earnt from farming the land out of at least 5 of the last 7 years prior to their death. As many land investors, such as James Dyson, Jeremy Clarkson, pension funds and so on, would not qualify under this criteria, they would not get IHT relief and so achieve Labour’s stated aims. Whereas the family generational farmer whose principal source of income is the farm, would.
It appears the Labour government have redesigned the inheritance tax exemptions re agricultural relief as an attack upon rural Britain who have little understanding of the impact , as per the recent DEFRA intervention to the Treasury, because the assets are not often realised by those who own / inherit them and it’s not only the farmer affected but those businesses who are dependent upon farming, re machinery dealers and agricultural agriculture merchants.
Also the figures of who will be affected are distorted as per all the inheritance tax figures because the thresholds are being frozen whilst the assets are increasing in value, the stealth tax approach which political parties are now taking.
The inheritance exemption for agriculture was brought in because the margins on the value of their assets were so low it was only families and their emotional attachment to the asset who would continue to run a business with such poor returns, family farms are inefficient because they often take an income which is relatively low, margin on a 500 acre farm is likely to be just over 50k when the assets are in excess of 6-7 million.
It will also not affect those who it is claimed the changes are targeting re car journalists and vacuum manufacturers because they will employ tax avoidance measures which is why they bought agricultural land in the first place. Perhaps those wealthy landowners affected should declare themselves to be a monarch of their land and avoid tax like the Duchy estates, but that’s an altogether separate question which should be debated if the country needs wealthy individuals to pay more tax!!
I think you need to watch Harry's Farm on this topic as he explains how this will affect generational family farms.
Posted this last time but posting again because I'd love an answer! Please could you do an episode discussion Land Value Tax? Every time I hear an economist talk about it they seem to go all moon eyed, wax lyrical about how amazing that would be and what a shame it will never happen, and then move on to something else. Is it really that great and, if so, why haven’t we got one?
Will miss Paul, he's been a great voice for the IFS (as soon as you hear him, you know it's the IFS!) and a excellent voice for policies that are fairer in the round.
@@OneAndOnlyMe never had a real job and peddles a very biased point of view.
The overall effective rate on these family businesses will often be higher than 20%. When it comes to paying the IHT tax bill it will probably be necessary to take money out of the business in order to pay the bill. This is likely to give rise to dividends tax, CGT, or both of those. Overall, the loss to the family business may be in the ballpark of 40% of its value.
So, the same rate as everyone else, then
I think this discussion missed the point that farmers make use of BPR a great deal, not just APR. That is one of the reasons why the Treasury’s figures are so far out.
It is suggested that the farmers and other small business owners just use insurance to protect themselves. Unfortunately, paying such insurance until the day one dies is extremely expensive. Logically, the premiums paid by all those business owners are going to exceed what the insurance companies ever pay out. This is not a solution to the inheritance tax problem that they will face. Overall, it’s just a way for them to prepay the IHT years in advance and lose interest on all the money that they have given to the insurance companies as premiums in advance of their deaths.
Yes, and also taking money out of the business to pay the premiums is likely to give rise to dividends tax and/or CGT.
The larger problem is that the value of farmland is no longer linked to its farming activities but as a tax avoidance scheme. Hopefully IHT will bring that inline. Time will tell if that means much lower farm values. Long term it will help real farming activities. However, I agree that some IHT exclusion should apply to farmers and landowners, not just landowners.
Massive drop in land values won't be great for a farmer who's got a mortgage or secured loan on their land. (Something that occasionally gets done to invest in buildings and/or equipment)
Government are being very greedy. Double hit on pensions when passed on, and freezing thresholds is so cruel.
The government is trying to fill the hole in the economy left by the Tories' mismanagement. Don't you balance your own budget ?
Business relief is likely to have a much larger impact on the employees of that business if the inheritance tax bill cannot be paid without selling the business
Especially if you can’t find a buyer
Agreed
There seems to be an assumption that it is easy for the business owner to simply pass across ownership at least seven years before their death. However, in reality it is not so simple at all. There many tax, psychological and practical impediments.
How can the owner know when they are going to die? How many years and what level of care costs are going to be required for the owner (and their spouse)? Does the owner trust their children (and their spouses)? What about the possibility of divorce or bankruptcy of one of the children? What about all the CGT repercussions of transferring before death (that could actually exceed the IHT problems)?
"I struggle with my zeros" - Director of the Institute for Fiscal Studies
Hi Paul Johnson, one small issue comes to my attention and I would very much like to know the answer, my question is what percentage of farmers are owners of the land they use?, is it farmers you are talking about or landowners?.
To the best of my knowledge relatively few people that actually work the land also own it, among those who do the farming there are some who do own some of the land they farm but also rent quite a lot. One way of settling this question for me would be to identify what proportion of agricultural land is owned by insurance companies, pension funds and other corporate bodies.
Cheers, Richard.
Thank you for an informative presentation. A few points on the inheritance tax changes to defined contribution pension pots. First, you made no mention about the fact that for many people pots have already been taxed at the rate of 55% on the surplus above the previous limit when the pension was first crystallized (until Hunt recently changed the rules). So there are effectively, for those pensioners who have already paid income tax on crystallization, on the surplus above the limit, and survive beyond the age of 75 years , three means by which HMRC will levy tax i.e. on crystallization, on drawdown, and on their estate upon death when their heirs pay income tax at their marginal rates. Second, given for almost all pensioners in their sixties there is (without a diagnosis of terminal illness) actuarially a very wide range of possible ages at death, almost all will drawdown at a rate that it is likely to leave a substantial residue remaining upon death. Third, the Chancellor described the change to pension pots as closing a "loophole". It was not a loophole as it was explained by Osborne et al, at the outset, that being able to pass on the residue on the pot was one of the few advantages of having a defined contribution pension instead of a defined benefit pension. As we know most people outside the public sector were then are still not now able to join a defined benefit scheme.
How will family businesses be valued for IHT, range of values could be massive and controversial???
The HMRC do it based on standard valuations.
@@PaulNaybourlike what
@@irisaviation852 a multiple of net profits depends on the size and strength of the business. Typically between 3 to 6 times net profit.
Like VAT on schools the IHT on farms looks like a significant political mistake and risks angering another section of society which has not inconsiderable power
If the issue is about HNWI tax avoidance, how relevant is this as a target when it only represents 1700 applications for the IHT relief; and what is the total value of these 1700 applications for tax relief. In fact the whole of this IFS discussion is a little skewed because it suggests that people starting a pension or everyone starting a business is somehow doing it all for tax avoidance purposes- I’d suggest that is a distortion of why people start a business or a pension. The fact is IHT is a regressive tax predicated on a view that people should not benefit without taxation! For me, the first point matters, the current Gov’t are swimming against the tide; when the world is moving away from death tax to the realisation that a wealthier population inevitably creates more internal investment in a country.
surprised that "an inherited house in London" is flippantly compared to a family farm. The inheritance of a home you don't live in can be classed as a windfall just like cash. A family farm that is worked by members of the family which is their livelihood is in no way comparable. Townies don't get the country.
One of the longest standing taxation limits is the £3000 gift allowance. This was last changed in 1980!
I own a family construction business that will be greatly affected by this. What incentive is there for me to keep investing in the business to increase its value when my children, who I hope will be involved at some point, will simply have to pay more tax because of it? Why should I invest in new plant and equipment or refurbish the head office or start new subsidiary businesses or even increase the turnover, when all these will increase the IHT charge? I might as well rinse the business, give the money to my children and eventually run it right down.
you make an excellent case for how the UK's obsession with "small" and "family" businesses holds back our productivity and why we should end all special consideration to these businesses. thank you.
What is the difference between employers nat ins rates in 2022 and rates proposed for 2025? Please ignore employee nat ins. I want to understand why GPs are moaning now?
As always a great one , thank you
You said a couple can pass on the assets.
My mother is still alive but my father died 30yrs ago.
Surely this means the additional £175k tax relief you mentioned is not added on to the net estate assets as my mother is not “ a couple “ ?
I’m assuming her “ single allowance “ is still £325k.Her home is valued @ £600k plus £50k in savings so deduct the £325k from the £650k net assets that means a tax bill of : £130k @ 40%.
I think we can use my late fathers IHT allowance but this is very time consuming as previous comments has shown.
They have made a valiant attempt to understand the APR/BPR issues, but I’m afraid to say that it is a very complicated area and many key aspects have been overlooked. Planning around the announced changes is difficult in many cases. Gifting is tricky and can end up more expensive than the 20% IHT.
It really needs a group of decades-experienced estate planning tax lawyers to discuss these topics. I guess that now such people are too busy enjoying the influx of business these (putative) changes have stimulated!
Would the family business perform better if it were sold to multiple shareholders each sitting below the £325,000 threshold, each avoiding IHT?
Forecast tax increases everywhere, when will the honest questions about spending be reviewed? Increasing taxes on businesses and people is a form of Austerity.
I understand that a member of the IFS was the author of removing the IHT relief as he didn't believe in families running farms. Is that gentleman aware that one of the biggest failures of Communist Russia was the state owned agriculture? Is that gentleman so happy that UK food security can be compromised and if so what exactly is his agenda in the long run?
Yes, Arun Advani is the academic who has pushed this via the IFS and his own 'think tank' vehicles. He's also on the board of the OBR.
So he has pushed the idea to the Government, then he's involved in judging their performance via the OBR, then his mates at the IFS help to make his suggestion seem reasonable.
Interesting!
@@VictoriaBeverley Well his suggestion isn't reasonable and along with that fool Milliband is compromising Britain's security on a scale not seen since WW2. Putin must love those two clowns.
David questioned why people receive IHT mitigation on ownership of AIM shares, but perhaps it is better to see it from the point of view of the need to support small British companies. We have SEIS supporting seed funding of companies, EIS and VCT for early-stage funding, and then for those that make it to IPO there are incentives to invest in AIM shares (IHT relief and exemption from stamp duty). From that point of view, the IHT relief on AIM shares makes a lot of sense and it is shame that it has reduced from full relief as this will result in less investor support for capital raising due to reduced incentive.
Why doesn't anyone discuss agricultural ties to land, why it exists, and why it is important? The production of food is vital as 60% of food consumed in the UK is produced in the UK. Why then tax the main ingredient of food production, land. This will increase the cost of food production.
Paul says that as many assets as possible should be treated similarly by IHT. Agreed. It makes sense for APR and BPR to be treated in the same way. (NB farmers use BPR a lot.) Any resolution to the farmers’ complaints must also apply to other family businesses so the benefits are spread evenly. If agricultural assets were to get a better deal, then even more money will flow across to those.
Saw you on Damo's channel, Paul. And it's brought me here !
Can someone please talk about the biggest exception to the inheritance tax, being the monarch. The British people should demand that the monarch pays inheritance tax like the rest, the broadest shoulders…
Even just the actual rich. Somebody owns half of Buckinghamshire it'll be via a trust in the Cayman Islands. What IHT?
We are now going to try and tax business assets……so let’s get all businesses to pay IHT ……. Businesses should not pay inheritance tax (IHT)-this tax shouldn’t exist. Imagine TESCO having to pay a 20% tax when their CEO dies! Why should family-run firms bear that burden while large corporations, like those owned by private equity, simply don’t have to? Let’s get TESCO to pay 20% first. We need a tax system that encourages businesses but clamps down on avoidance, and this isn’t it. Labour clearly has no clue.
tesco do have to pay IHT in a sense, when their shareholders die with assets over the limit.
sorry, but frankly too bad. you have to pay the tax like everyone else
Given IHT raises relatively little (0.7%), and also - thank you for pointing this out - the UK has a relatively night IHT rate and threshold, and many countries have actually abolished it in recent years - can we ask why this government has decided to change the rules so more assets are included in the taxable estate? Essentially it’s a left-wing, ideologically-driven envy tax. Was this flagged in the Labour manifesto?
There should be no Inheritance Tax, wealth and savings have already been taxed.
We are over two weeks since the Budget, there is no more learned authority than the IFS, yet there is still a total misunderstanding of impact on farms of the budget. Farmers are hit by the changes both of APR and BPR. Under these new proposals I as a 78 year old farmer would not only pay 20% tax on my farm land which goes back over 200 years but BPR on 3000 tons of potatoes grown this year and the cold stores which hold them safe not forgetting the £600,000 combine bought last year. I expect more from the IFS that parroting the Government's misinformation. I have my son and 24 year old grandson working with me, we collectively face not just one but two impacts from the combined APR and BPR changes. We are not a big farm but we will need luck to survive as a business. The IFS needs to look again at the true impact on farmers.
Luck is not a business strategy.
Instead of the difficult and sometimes hard work of being creative and growing new industries, they attack heritage existential industries.
The weak budget is obviously flawed.
the new list: no families, no farmers, no food, no future.
As a farmer of a family farm with 170 hectares and a few other assets my son will be looking at £830000 tax . We make on good year £40000 profit how can he pay that bill
if you're clearly unwilling to do the obvious things to reduce IHT, he can't. he'll have to sell the asset he may have an emotional attachment to, just like everyone else.
sorry but frankly too bad, farmers are not special.
You guys literally suggested she should do this raise IHT on farms, before the election.
At 24 minutes, the discussion about farms misses the major point that farmers are cash-poor and they cannot pay the tax due in barrow loads of soil and "fertiliser".... So, farms will have to be sold. Farms will accumulate in large conglomerate farms.... What could possibly go wrong with that?
Thank you for raising the cash matter later in your discussion.
Why is the government taxing death?
Never, ever trust HMT figures or arguments. I’ve personally spent more time trying to push back on the envy tax on education rather than farming, but my experience is that HMT is staffed by low quality individuals - presumably “working from home” for a very unreasonable five days per week
The assumption that everyone csn plan away the problem including gifting is full of flaws. There may be insufficient time to evade the 7 years rule. Gifting out of excess income doesn't work if the income is insufficient. Farming is often 1% income of the asset value. Pensions shouldn't be drawn at greater than 4% according to general IFA guidance without risking the capital running out before death. Similarly for small business income. How can you gift if you are reliant on the capital to generate the income.
I think the panel clearly believes all wealth should disappear at death.
Finally all of the estimates if who will be impacted are based on historical estate claims. These were made under the old rules and where's the projection for fiscal drag caused by freezing limits and inflammation. Ie how soon before someone only in receipt of the state pension will pay income tax. The government taxing itself is the result and it's only single digit years in the future! That's how poorly these numbers have been considered. Oh and let's give this money to the currently in efficiently run state organisations like the NHS who need help and reform to spend wisely first.
Wow that’s a very skewed perspective on farms, the issue is not how many farms are impacted each year, the issue is what percentage of the overall number of commercially viable farms that are impacted over time I.e. is it 1%, 10%, 50% of all farms and its not just the house and land that’s the issue if you look at the equipment that farms have, this is very considerable part of the value of a farm. In addition to this, we need to understand why we have farms and what the consequence of the tax change is. It is a national food security issue and as a country surely we should consider this as well as the climate considerations around food miles that could be avoided. Finally I think the way the government has treated the concerns of farmers is reprehensible, effectively just telling farmers they are wrong and should go do some proper tax planning is dismissive at best and actively rude at worst
farmers should not receive special treatment just because they decided they preferred a different career.
there should be no exemption for farmers at all.
Your ownership distortion argument only stands up if the IHT threshold is zero.
you forgot to discuss age 75 at the start of this < 20 mins
As usual from the IFS. They do their best to appear neutral, but in the end socialist tendencies emerge by not fully exploring the pro-business wealth-creator perspective.
Another fake account made in the last few days...
Another genuine RUclips account made in the past few days...
I have been an avid watcher of this channel and normally find it very informative and clears up the lies that politicians of both sides make. Today I feel that you have either deliberately or by naivety have mis-understood or formed a very biased narrative about farming.
Firstly you quote figures comparing farmers affected to the general public, and deaths being only 0.1% of total deaths, surely you should be comparing deaths of farmers to people paying inheritance tax and I am certain that figure will not be 0.1%.
The NFU have said this will affect 70,000 farms, which is the majority of farms in the UK, show me any other industry where the majority will need to pay inheritance tax. I suspect you won’t unless you count hedge fund managers as an industry, and even they will not pay it one way or another.
You talk about emotional attachment to the land and compare it to houses in London. Again show me the percentage of home owners who have lived in the same home for 5 or more generations. I suspect there will be extremely few, whereas farming is seen as a multi generational occupation.
Currently farming is massively more regulated than virtually any other industry, we can buy OSR from the continent but farmers in the UK aren’t allowed to sow the same seed.
Farming is not like other industries, if it were we would have no hedges and there would be large fences keeping people out.
I am sure you have watched clarkson’s farm and can see all the issues farming has had to put up with and this government is only making it worse.
I hat inheritance tax, for me it is morally bankrupt, but I can accept it if our apartment in Convent Gardens has gone up by several hundred percent, but taxing farmers who have had their farm for generations and had hoped their future generations will farm the land is more than morally bankrupt.
"The NFU have said this will affect 70,000 farms" this new Labour target is significant. How about the businesses? is IFS having trouble with zeroes ?
"Home owners who have lived in the same home for 5 ... generations." Precisely. Non-farmers (most of them) have to sell their familly homes. Farmers have been in a privileged position for centuries, whereby they do not have to. By paying less than their fair share of tax, they make the rest of the population pay more. THAT is unfair !
@ I love your their fair share of tax. Britain has the cheapest food in the western world. A current farm worth over £5 million makes about £32,000 this year and £-16,000 last year. If you social warriors want to just screw farmers then we end up with the US farms, where animal husbandry is very must a last thought , they keep their chicken so badly you have to chlorinate their chicken and wash eggs and keep them refrigerated. Next time I am around your house just watch me walk across your garden and demand you maintain a path.
You look out and see nice field with hedges, well someone pays for that and is sure as hell isn’t you.
Farmers in the UK have to compete on a world market where say in Europe they are allowed to plant treated OSR, but not in the UK, Australian and New Zealand farmers are allowed to pump hormones into their cattle, UK they are not.
If you want to tax people for social justice. Just look out for what you will get higher food costs and lower quality.
Up the revolution brother.
@@MrJudgementday99 None of this has anything to do with paying a fair share of tax. Plenty of other people have their woes, and difficulties in earning a living. Why should some be liable for inheritance tax, but not others ? Who else gets a huge handout when there's an outbreak of foot and mouth disease, or bird flu ? Who else gets public money to go around killing badgers, because they won't have their animals vaccinated ? Don't give me all that guff about feeding the country, when there are fields full of rape, flax and solar panels. Who eats those ? BTW, I lived in a house with a footpath running through the garden, and I maintained it.
Disappointed by this video as the detail is not there and it seems misinformed in several key areas. I expected better analysis by IFS.
In other words, why bother working or saving?
Lack of knowledge on the panel of the real world impacts and this poor mindset is hurting the UK economy. This is the reason why so many talented people are leaving the UK to places like Dubai!
Hence, the tax increase will leave to brain drain and poor tax receipts!
I don't understand the point if not paying tax and tax rebates on pensions, it seems to just cause issues.
The people get the Government they deserve. Britain, you voted for a taste of Socialism after 12 years, so enjoy!
Twelve minutes and no detail. Drivel.
It would have seemed fairer to society if the Gov had cut Foreign Aid and the cost of illegal immigration
Who's affected? Well, not that wealthy tw@t Clarkson, that's for sure
0.1%
You completely fail to understand the problem.
Why does the lady speak so fast, she's barely audible
You can slow the playback speed in RUclips options if you're struggling to keep up. I actually quite like it when there's somebody on that speaks faster, I don't have to increase playback when listening then :D
It's ok, watching more podcasts like this will help to make you a more well-informed person and allow you to keep pace with experts.
@third7715 Her natural speaking style? It's part of her, let's celebrate her intellect and the excellent content. 👏
Can someone please talk about the biggest exception to the inheritance tax, being the monarch. The British people should demand that the monarch pays inheritance tax like the rest, the broadest shoulders…
@@asgggg3372 Start with Buckingham Palace paying less council tax than a semi in the North of England.