Guest blog – Farmland Tax Breaks Revealed by Miles King

Miles King is Chief Executive of People Need Nature a charity working to highlight the sensory, emotional and spiritual values of nature. He has worked in nature conservation for 30 years, leading the conservation work at Plantlife, The Grasslands Trust and Buglife. He has also worked for English Nature, Natural England and as a consultant. He is co-author of Arable Plants: A Field Guide (2003), and The Nature of God’s Acre (2014).

Today People Need Nature publishes its latest report, investigating the tax system and how it affects farmland. Where there’s muck there’s brass: revealing the billions hidden in farmland tax shelters lays out the many, varied, and some frankly bizarre tax breaks available to farmers and landowners.  And we argue that these are providing no benefit to society, and in some cases are operating against things society might want.

Readers of this esteemed blog will be familiar with the fact that farmers and landowners across the UK receive between £3 and £4 billion a year in subsidies from the EU’s Common Agricultural Policy. This equates to about £2.5 billion a year in England. Most of that is paid in the form of an area-based payment, while a small proportion pays for agri-environment schemes supporting farming practices, which are more amenable to things like farmland wildlife. Anyone interested in England’s should be interested in what happens on farmland, because farmland covers about three quarters of England. So most of the money, which is paid to farmers, is paid because they own or manage the land, and there are really very few strings attached to that money. That’s not the farmers fault of course, it’s the way the EU and the UK Government decide to disburse those funds.

As a result of the EU referendum back in 2016, the UK will have to come up with a new way of supporting farmers, as we will leave the Common Agricultural Policy. It’s likely that there will be different approaches in each of the UK countries, and I’m really only talking about England from now on. Michael Gove, when he took over Defra, immediately starting talking up the opportunity to create a new way of supporting farmers, to provide what are known technically as public goods. This is not particularly helpful language, but it’s economics-ese for things that society benefits from, which cannot be provided by the market.  These might include more farmland wildlife, better water quality in our rivers, reduced downstream flooding in our towns, more pollinators for our crops – and even somewhat elusive things like “rural vitality”, which is some complex measure of the health of rural communities.

The Agriculture Bill, which is now stuck somewhere in Parliament, has taken this thinking forward, and it looks like there is still a good chance that at the end of all this farmers will only be paid for public goods, and the old system of receiving a subsidy for owning the land, will be gone. There are still many problems with the Agriculture Bill, but the central premise of “public money for public goods” still stands. But what about the tax system? Is it working to support provision of public goods, or not. And if not, should it also be reformed? This was something that had been bothering me (and others who know far more about this than me) for a while.

When Chris Packham asked me to be his Minister of Agriculture and write a chapter in last year’s People’s Manifesto for Wildlife, I thought this would be a good opportunity to raise the issue of farmland and tax, which I duly did. I was surprised that this was picked out for particular criticism, so I thought I had better get on and find out what the situation actually is.  

What I found was surprising – that the total tax breaks available on farmland in England are as great as the total subsidy paid under the Common Agricultural Policy.  And there are even fewer conditions placed on those tax breaks than on the subsidies, conditions that could mean the tax regime provides benefits to society. The main tax breaks are Red Diesel, Business Rates exemption and Inheritance Tax exemption.

The first two operate day in day out on every farm in the land, though of course the more Diesel you use, the bigger the tax break you benefit from. So this particular tax break, worth around a billion pounds a year across the UK, and £550M a year in England, will mostly go into the pockets of big arable farms, where most of the diesel is used. 

Farmland and farm buildings are entirely exempt from Business Rates.  This is worth about £1Bn a year in lost rates – rates that increasingly flow directly to cash-strapped Local Authorities.  Again, as rates are based on the value of the land, the larger the area of land owned, the bigger the saving. So this exemption is worth most to the largest landowners. There are no conditions attached to this exemption. Indeed this exemption is so deeply buried that the Government don’t even make an assessment of how much it costs the Exchequer.

The third doesn’t really show up in the annual accounts of farms, because Inheritance Tax exemption (Agricultural Property Relief or APR) on farmland only applies on the death of the owner. Tax Justice UK  recently published a report showing that 62% of APR in a recent year benefited just 261 families in England. It’s difficult to put a precise figure on the tax benefit and it varies considerably from year to year, but APR and the related Business Property Relief are likely to cost the exchequer around £700 to £800M a year.

There are then a whole plethora of other tax breaks available to farmers – from VAT exemptions, exemption for road tax and MOTs on farm vehicles, to “roll-over” relief from Capital Gains Tax. Together these tax breaks create a rich and complex landscape, which has led to the creation of a mini-industry of tax accountants, land agents and consultants. Worse still it, has created the ideal conditions for investors looking for a place to shelter their wealth from taxation, quite legally, without having to move to the Caribbean. Even without considering the effect of the farmland tax regime attracting in those seeking tax shelters, it’s salient to note that, as Guy Shrubsole’s recent book “Who Owns England” revealed, 50% of England is owned by 25,000 landowners, who are the beneficiaries of this very generous tax regime.

None of this provides the sort of public benefit that the new Agricultural Policy Michael Gove has established, is seeking to create. While Brexit might be a nightmare for all sorts of other reasons, this is a great opportunity to open up the tax maze to scrutiny and explore how it could be reformed. Reforms that could mean this substantial amount of money is channelled towards farmers who manage their land sympathetically for wildlife, adopt the principles of agro-ecology, and produce the food we desperately need more of in our diet, like pulses, fruit and vegetables.

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27 Replies to “Guest blog – Farmland Tax Breaks Revealed by Miles King”

  1. Well done, Miles. While I am uncomfortable about all of these tax breaks some are more egregious than others. The tax exemption for red diesel applies to other uses such as canal boats and excavators so it is not exclusively for farming. And householders benefit from only 5% VAT on energy costs so it is not simply farmers that benefit from low tax on fuel. No, the worst by far is the exemption for simply owning land and passing this on down the family. While the Lumpen Proletariat gets to cough up inheritance tax when passing on their ‘estate’ to their offspring, farmers pass their land down the generations without a penny being taxed. And you can imagine what that does for innovation.

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    1. thanks Alick.

      Yes in the report I note farming is estimated (nobody knows) to consume 25% of red diesel. As far as I could tell most of the rest is used in the construction industry.

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  2. Miles,

    Is this just another attempt to attack farmers ? Given how far adrift you are on the actual facts one would be forgiven for thinking it was. Your basic argument is that on rates, fuel and IHT farmers are wallowing in tax breaks at the expense of everyone else and enjoying fat subsidies as well.

    Fuel is not a tax break. Rebated fuel, or fuel that is not subject to the tax element for road use can only be used in agricultural machines used for the purpose of farming not road use for hire or reward or haulage. Since it is a transport tax it hardly applies to ploughing a field it the same way as a motorist pays tax for using a road. Many other sectors are allowed this rebate including construction and mining. Rebated fuel is also allowed in aviation and marine use. I suggest you read HMRC guidance on the issue.

    Business Rates on farm buildings are only charged if the buildings have a commercial use outside the scope of farming. If those buildings are used for non agricultural purposes them they are subject to business rates. If a farmer puts up a building to keep his cow dry then its not rateable, if he turns out the cow and rents it out to keep a caravan dry then it is. You may say that all farm land should be subject to rates and I'm sure you would welcome this but given the marginal nature of farm profitability it would be the death knell for many farmers, something I would imagine some of our critics would welcome.

    Agricultural Property Relief "tax break" on farm businesses for IHT is in your opinion a tax break however you fail to mention that Business Relief is also available for non agricultural businesses. If the owner of a non agricultural business dies then that business can claim relief as well. Perhaps you think that this is wrong and people would build up businesses that employ staff should have that business taxed at 40% of its value just because the owner dies and that it should then cease trading maybe ?

    Your final argument is that agricultural subsidies are just a way of making UK farmers into fat cats however you fail to mention that the subsidy amount exceeds the average profitability of UK farming and that without subsidy most if not all UK farmers would cease to trade as they do now. I suggest you look at the data sets available at :
    https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/800778/agriaccounts-tiffstatsnotice-10may19.pdf

    I hope the readers of this blog can see that your posts is nothing more than yet another attempt to paint UK farmers as worthless recipients of both tax breaks and subsidies by selective and inaccurate use of the facts. Everyone is more than aware that you don't like the sector but don't worry as I'm sure after Brexit there will not be many of us left.

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    1. Thanks Julian. As a blog this is only ever going to be a summary of the report. I suggest you read the report and hopefully your questions will be answered.

      On your last point - I think it's important that people understand that farming in England is effectively propped up by subsidies and tax breaks. What does this say about our attitude towards farming and the provision of food?

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      1. Well Miles there are two versions of this "report". Yours and HMRC's. Its up to the readers of this blog to choose who has the vested interest in what.

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    2. Julian I've seen at first hand how 'poor' the crofters of Lewis are which has now left me with an instinctive and immediate distrust of any claims from any farmer that they are on the near breadline I'm afraid. I'd spent decades as a central belt Scot being told of the quaint, hospitable, salt of the earth people of the isles, still suffering from the clearances and struggling to hold on to a way of life and a very basic income. What I actually found were a people who were getting every concession, grant, rebate going and still it wasn't enough. I remember a lady in a very nice house asking me in a very wheedling tone 'but can we not get it for free?' when I was talking to her about the government scheme for helping to install more energy efficient heating systems. I encountered more genuine need in supposedly posh Corstorphine than I did with crofters, their sense of entitlement is infuriating. Funny how lucrative marginal farming can be. According to a rep from one of the crofting organisations sea eagles (all 130 pairs of them) have rendered sheep farming on the west coast of Scotland uneconomic, but was it ever economic? So I suppose compensation claims will now be a new income stream on top of everything else. I'm not going to hold my breath waiting for crofters to say 'Thanks very much we have enough now, there are actually people like those in Fort William with no mains gas who need help far more than we do!' Fat chance, the general public are having the piss ripped out of them - an unpleasant, but fitting term.

      Red diesel must be really cheap in comparison with standard diesel. I know a farm in Suffolk where the hop plants were a little behind for selling on to growers so several mobile floodlights with built in generators, the type used at festivals, were hired and kept running all through the night for a couple of weeks to extend the 'daylight' growing period. A field being floodlit in the hope of making hop plants grow a little faster. Not surprising that there was (is?) a black market for red diesel.

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    3. Julian, if farmers are unable to make a profit without subsidies, how come new people are being attracted to the business?
      People such as, say, Richard Dyson. Please explain why he finds farming so attractive?

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      1. Yes - I have also wondered what attracted squillionaire James Dyson to the Inheritance Tax advantages of sheltering his moolah in farming enterprise. It's the Mrs Merton Conjecture

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    4. Julian, as a beneficiary of the current arrangements for agricultural subsidy and tax reliefs it is perhaps understandable that you should be hostile to any questioning of the financial support directed at farming. You suggest that many farmers would go out of business if the subsidy and tax reliefs were removed and this may well be the case but that is not actually what Miles has proposed as far as I can see.

      The existing system for subsidy and tax relief for farmers amounts to a very large sum of money diverted from the public purse into farming and it is clear that a disproportionate amount of this benefits the super wealthy who really do not need the taxpayer's support. It surely cannot be a bad thing to review this whole system therefore and consider how reform might ensure that the money is better spent in terms of (a) purchasing more 'public goods' and (b) supporting working farmers rather than the mega wealthy for whom land is often just a canny tax-efficient investment.

      In the past many businesses and whole industries have gone to the wall without the government stepping in to save them. Other businesses and sectors are even now in a precarious situation - e.g. High Street book-sellers - and would no doubt be pleased to have zero business rates as a lifeline to help them out of their predicament. If farming is to be a special case in terms of handouts/reliefs then we do need to ask why and what public benefits we expect in return.

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      1. Jonathan,

        I would have thought that since the UK now spends on average 8.2% of its average household income on food bettered only by the US and Canada that might be seen possibly as a benefit ?

        In 1970 the UK average spend was 21%.

        Sorry just how much more do you want ? Maybe we could just produce for free ?

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        1. Julian - free would be good. But you've certainly wandered far from the tax issue. Miles's point, and I valued your first long response (thank you for that) is that society is paying a lot more than it thinks for food. It's long been understood that 'we' pay three times for food: we pay in agricultural support, we pay in the shops and we pay in terms of the externalities (the positives and negatives that are non-market goods such as water quality, wildlife, landscape beauty etc). Miles's report highlights a fourth way that we all pay for food - through loss of tax receipts.

          It's all debatable - but it is also all important to include in the calculations.

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          1. Mark, I follow your logic to some extent but how can you/us/consumers/uk benefit from taxation of an industry that has to be subsidised to trade ? There is a certain lack of logic in that unless you believe in state control ? Why not just nationalise UK farming instead ?

            Anyway as they say "you ain't seen nothing yet"; post Brexit with reduced subsidies along with a soft Brexit were we have to aline our food production with EU regulation while accepting US imports UK farming is going to be sacrificed on the altar of political expedience.

            Quite how a devastated industry is going to provide any public good under those circumstances eludes me so the argument is going to be superseded by reality.

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          2. Julian - I follow your logic to some extent but not much. Most consumers will be perfectly happy with cheap imports, even of low environmental and welfare quality, so that answers your first point. I would be quite happy with state-ownership of more land rather than state subsidy of all land but I'm probably unusual in that respect and I genuinely would worry about the state being a farmer (land owner yes, land manager less so).

            A devastated industry? I didn't vote for Brexit - I think you may have done. I tried to save you from this future but you were hell-bent on going for it...

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          3. "post Brexit with reduced subsidies along with a soft Brexit were we have to aline our food production with EU regulation while accepting US imports UK farming is going to be sacrificed on the altar of political expedience"

            Given that it was always clear that, post-Brexit, farm subsidies were likely to be reduced, if maintained at all, and that the UK market would be opened up to US producers it was never clear to me why so many farmers were so keen to vote for Brexit.

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        2. This is a really important point. As a country we show how much we value our food and the way it is produced, by what we are prepared to pay for it. And it turns out that we spend the third lowest proportion of income on food in the world, and the lowest in Europe.

          This obsession with spending as little as possible on food is extremely damaging. And the irony of it is, of course, that it does not enable the poorest in society to have access to nutritious food, let alone domestically produced. Cheap food is in fact a poverty trap, because it means wages can be kept artificially low. When people regard food as cheap, and of low value, they care less about wasting it - hence our astronomical food waste problem.

          So if we are going to reform the system - there seems little point changing our subsidy regime to a public goods payment model, if everything else stays the same. if society demands that they produce food more sustainably, then yes alter the payments system and the tax system, but also recognise they need to be paid more for their products, at the farm gate. This either means the retail price goes up, or the cut taken by the suppliers and retailers goes down. Or both.

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  3. Playing devil's advocate a bit here, but also wanting to put farm subsidies into the context of how much the less well off are subsidising the super rich across the piece. Having said that I genuinely would like to know;

    Is this level of support for agriculture unusual compared to other sectors? The fossil fuel industry gets huge subsidies, air transport gets tax free fuel and a lot of infrastructure paid for by the taxpayer, housebuilding is both routinely let off (at appeal) from its social obligations (low cost housing, s.106, etc) and has made record profits recently thanks to the massive subsidy of "Help to buy" really being "Help to raise prices" , etc etc. Isn't agricultural support just part of the general malaise of the world?

    And on the specifics of in heritance tax. Be careful what you wish for. With inheritance tax paid on family farms, within a generation I suspect that most farmland would be owned by big businesses, as almost no family farm generates the revenue to pay inheritance tax on the value of the land. Different context, but I personally know of a thriving and nationally reknown old artisan food business (smoker) that had to close because the father died and the value of the small plot of land on which the smoker and shop stood was worth many times the value of the actual business activity. It was worth so much because it was situated in a popular second home village. The smoker has gone, and the site is now occupied by... another second home for another rich Londoner. Not sure that was a good outcome for anyone, not even the other second home owners who've lost one of the businesses that made that place so unique.

    If you want to put every family farm in the UK lowlands into the hands of big business, and every upland farm into the hands of city grouse shooting investors, imposing inheritance tax on family farms would be an easy way to do that.

    Be careful of what you wish for - not saying that nothing needs to change, just that its not as simple as we might want it to be. We need to be careful to avoid unintended and highly damaging consequences.

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    1. Yes, ‘be careful what you wish for’ especially re small farmers.
      Ref the useful comment by ‘Small Farmer’ on Richard Murphy’s June blog on inheritance tax.

      https://www.taxresearch.org.uk/Blog/2019/06/03/inheritance-tax-is-a-giant-wheeze-to-help-the-really-wealthy-whilst-pretending-otherwise/

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  4. I'm always amazed by how effectively the farming lobby has suppressed intelligent discussion about agriculture in this country over many years. The absolute need to intensify, than intensify again seems to have swallowed most conservationists - who are avidly studying 'sharing and sparing' on the basis that further intensification is essential. Just see how far food security stretches when solar panels look more profitable.

    Amongst all the competing tangles of future farming there seem to be just two big questions:

    - What are the outcomes ?
    -What's the bottom line ?

    Taking the second first, most of the policy/propaganda coming out of farming actually tracks back to one thing - farm income. Not surprising - if you aren't making money you aren't in business. The drive to super-intensification goes back decades to the point where the debate on could British farming compete in a world market started - the answer was, with difficulty if at all.

    On the second, farmers are caught in peverse traps partly, but not entirely, of their own making. Noone considered flooding when the Government paid out tens of millions to drain the flood plains and rush water into our cities. And isn't it strange how the rain that falls on land is something that is regulated, but suddenly turns into money as its captured by a water company ? Which might have been fine when water was public, but now its more likely to be paying shareholders, perhaps a sovereign foreign wealth fund. Cheap food is partly of farmer's own making - but globally the market for food isn't working - thousands of producers, an increasingly small number of increasingly ruthless buyers - who can, for example, ensure that the world coffee market is always oversupplied. Some farmers in the UK - the noisiest most influential ones - are doing fine but dairying is disappearing by the day, victim of supermarket price wars, apples have almost gone, wiped out by higher yielding, often tasteless and fluffy, imports - promoted by supermarkets on price alone.

    Its time for all of us - especially farmers - that we cut through the miasma thats been created around farmers - anti-farmer, food security etc - and started discussing the real foundations of our agriculture.

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  5. All carbon emissions must be taxed if we are to move to a more sustainable renewable energy system and prevent the planet from burning. There is no point arguing that farmers should get tax relief on red diesel because aviation fuel is also subject to tax relief. It all has to stop. The other massive source of carbon emissions related to agriculture is the production method to make artificial fertiliser. This must be curtailed also - perhaps by taxing it. The use of artificial fertiliser also encourages degradation of the soil. If the soils were better managed they would hold carbon which would help too in the battle against global warming. Also restoring peatlands which are damaged due to overgrazing driven by subsidies would capture loads of carbon .

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  6. I see no mention in all this, maybe only obliquely perhaps, of the downward pressure on prices and costs to suppliers - including farmers - of the big food distributors, the supermarkets. There is no doubt we, as consumers, don’t pay what we should for ‘good’ food; and by ‘good food’ I mean wholesome, healthy food produced, preferably organically, without intensive ‘chemical’ systems. It is by the latter, big farming producers that, I suspect, the most gains (financial) are made. I believe it should be said that we don’t pay enough for our food and, by that, I mean that it is not the supermarkets, who should make all the gains from increased prices; that if the taxpayer is to ‘subsidise’ farming, there will surely be a way of administering such a reform to encourage the production and consumption of better quality food; seasonal food; food we can grow ourselves and not imported, and above all, bypass the power of the supermarket, who have done much to put the smaller more vulnerable producers out of business.

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  7. Mark, thank you for your reply (I think) but following your logic just means exporting our environmental problems to others. Yes, although I missed your attempt at salvation, I did vote to leave the CAP and I would vote the same way again.

    I am against the CAP's illogical position on agriculture and its slight of hand when it comes to policy. For instance the EU imports 14 million tons of GM Soya each year to feed its citizens while banning the same crops from being produced by its farmers on the grounds of consumer safety. It funds NGO's such as FOE and Greenpeace to enable these groups to lobby the same EU institutions which part funded them to support these policies. It has in effect relegated EU agriculture to a backwater.

    The two paths set for UK farming both within and outside the CAP will both lead to further environmental degradation as the sector losses even more profitability.

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    1. Julian - so if both paths lead to environmental degradation of famland, and if they lead to the same amount of it, then we should look to other things.

      The trouble with the opportunity to leave CAP is that the argument goes as follows 'The CAP is bad, we could do better' which is true but doesn't necessarily mean we will do better. But the package which leads to this opportunity of a better agriculture policy also brings with it the possible (I would say probable) abandonment of other EU environmental protection - particularly site protection, which, in my opinion, is a much more important and vital part of nature conservation and environmental protection. But we'll see.

      But I've moved away from the subject which is actually tax benefits for farmers.

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  8. Same old same old people farmer haters.
    We have come in a century from spending over 50% of family earnings down to a miniscule amount so that almost everyone has a car,mobile phone all manner of tablets etc to also live in posh houses and those who live in upper class Poundbury have not much to moan about.Of course when they have nothing to make money from articles or need to fill a blog then kick farmers is easy money.Have never heard even the harshest critic suggest crofters have a luxurious lifestyle.Go and try it the proof of the pudding would soon prove you wrong.

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    1. Compared to home owners in Fort William who have no access to mains gas in not great housing stock in a particularly damp, cold climate and are thereby having a terrible time keeping their families warm then the crofters I met in Leurbost, Shawbost and Grimshader etc were indeed living a luxurious life. However, the townsfolk of Fort William don't plead poverty and let's face being a 'townie' just doesn't have the cache of being a romanticised crofter. The result is that even in Stornoway the crofters are regarded as getting everything while the decent, genuinely hospitable people of Fort Bill get Sweet FA in comparison. The money goes to those who whine for it, play the victim card, not those who really need it and shame on our so called f****** elected representatives for going along with this. At least the enormous lie that hunt sabs are the perpetrators rather than the actual victims of violence is now being undermined by video footage and the internet. This still needs to happen with the 'crofting' I saw, what we are being told and shown is NOT the truth. I would heartily recommend people go to Lewis and see what life is really like for those poor, hard pressed crofters we keep hearing about - perhaps you could run tours to show everyone how wrong I am Dennis. I've a feeling the locals might be strangely reticent about others seeing what their way of life is really like. Incidentally I wonder if any of them had to spend a winter in an unheated caravan on an East Anglia farm for an agricultural wage? If you think you're being hard done by because you're a farmer Dennis maybe you should try being a householder in Fort William who is struggling to keep their kids warm, you could lay down that cross you've been carrying too.

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  9. Is the success of the agricultural sector attributable to the level of state support (tariffs, quotas, guaranteed minimum prices, subsidies, tax breaks etc) it has received for the best part of a century, and if so why would other sectors of the economy not benefit in the same manner from similar treatment?

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  10. John Anstie - I very strongly agree. Ok, it's partly the farming lobby's own fault, but cheap food has become a disaster and real farmers victims of a completely skewed market.

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