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Inheritance Tax: Addressing the Real Challenge: Delinking Land Prices and Unlocking Innovation

Writer's picture: Tony GentTony Gent

The farming community has legitimate concerns about the potential impact of removing inheritance tax relief, but it’s crucial that we address the deeper issues facing agriculture. Instead of simply hoping for a return to the past, we need to look toward the future and explore sustainable, innovative solutions for the industry.


Inheritance Tax, Land Valuation, and Innovation


The government’s proposed changes to inheritance tax (IHT) are a significant concern for family farms. While the full impact of these changes is hard to predict, many farmers—including myself—have had worrying discussions with accountants about the potential consequences.


Personally, I believe inheritance tax is a fair and necessary part of our tax system. It helps prevent wealth from being concentrated in a few families and encourages that wealth to be used to benefit the broader economy. Some may see this as a socialist viewpoint, but the same logic applies whether wealth comes from the state or a relative. As the media often criticises those who live off government handouts rather than working for their wealth, the same principle should apply to family inheritance.


That said, I understand the argument that family farms are unique. The capital invested in farmland is actively used in the business, and the nature of farming makes it hard to support a 20% inheritance tax every generation. While this is certainly true, simply scrapping the government’s IHT proposal won’t fix the larger issues that the farming industry faces.


Land prices have been artificially inflated, in part due to wealthy non-farmers buying land as an investment to avoid inheritance tax. This has distorted the agricultural economy. However, it’s not just this factor at play. The way subsidies have been tied to land ownership rather than production, as well as the roll-over tax relief on reinvested profits, has also contributed to rising land prices. The result is that land prices are no longer aligned with the land’s productive potential.


Instead of being valued based on its ability to produce food, land has become an investment in itself. As a result, the focus on efficiently producing food has taken a backseat, and entrepreneurship within farming has stagnated. When expansion is difficult, and farmers can rely on inherited wealth, there’s little incentive to innovate or change.


The Growth of a Family Farm

The Gent Family
The Gent Family

I started farming on a small rented family holding with my father and brother. At that time, land prices were manageable, and the income from production almost covered the cost of land. Inflation gradually closed that gap, and it allowed us to purchase and rent more land, which contributed to our growth.


When I started my own arable farm, my sons joined the business with a strong entrepreneurial spirit. Together, we expanded the farm significantly. By doubling our acreage, diversifying our operations, and adopting modern practices like No Till farming, we became more efficient and profitable. These new approaches have lowered costs, improved soil health, and stabilised or even increased yields.


While our farm may be in a better position than most to handle potential inheritance tax payments, things are still going to be tight, especially for future generations.


The Challenge for Future Generations


For my grandsons, the situation has changed dramatically. Land prices today are two to three times higher than their production-related value. This disconnect creates significant barriers to expansion and investment for both existing farming families and new entrants. It's critical that we have both experienced farmers and fresh, entrepreneurial talent to ensure the future of farming. But right now, it’s nearly impossible for ordinary people to expand or even start a farm.


Moving Forward, Not Backwards


Going forward, we must ensure that land values more accurately reflect their productive potential rather than their value as an investment asset. Aligning land prices with production value would reduce the barriers for entrepreneurial farmers, encourage investment in production, and help the industry become more economically sustainable.


Reforming inheritance tax relief could be one tool to help bring down land prices, potentially moving more farms back below the tax threshold. However, this isn’t guaranteed. There’s a risk that poorly targeted government proposals could have unintended negative effects, which have already been clearly raised by farmers.


An alternative approach would be to apply the full 40% inheritance tax rate with no relief for let land. This would be a fairer way to raise tax revenue and could help limit land price inflation.


Additionally, the Single Farm Payments (introduced in 2003) decoupled subsidies from production. In hindsight, this may have been a mistake. In the future, subsidies should be more closely tied to production value or, better yet, to investments in modern, sustainable farming practices. When combined with sensible IHT reform, this would allow genuine farmers to receive targeted relief that supports food production and sustainability.


Inheritance Tax and Agricultural Property Relief


Inheritance tax (IHT) is a tax on the estate (property, money, and possessions) of someone who has died. The standard IHT rate is 40%, but there are exceptions and reliefs that can reduce this rate. Agricultural Property Relief (APR) has been one of those key reliefs, allowing landowners to pass on agricultural property without paying IHT, as long as certain conditions are met. This relief was introduced to protect family farms, which are capital-intensive and often not highly profitable. The aim was to keep agricultural land in production and prevent it from being sold off for development or other uses due to the high tax burden.


The problem, however, is that this relief has often been exploited by wealthy non-farmers who buy agricultural land as an investment to avoid inheritance tax. This practice has inflated land prices, making it difficult for genuine farmers—especially new entrants—to access land.


Fostering Innovation Over Inheritance


Looking to the future, it’s essential that we encourage the next generation of farmers to innovate, rather than simply inherit. Agriculture must evolve to remain competitive, and we can’t assume that family inheritance will always be the best way to achieve this. By addressing the underlying issue of disconnected land prices and aligning them with profitability, we can create a more sustainable and equitable future for the industry.


These reforms would open up opportunities for younger farmers, allowing the agricultural sector to thrive instead of merely survive. It’s time for the farming community to propose positive measures for the future, not just to cling to the past.

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