Autumn Statement 2023 – what do we want to see?

I’m writing in reflection to the Prime Minister’s Speech to the Conservative Party conference. As was widely predicted, he used his speech to cancel the Northern leg of HS2. It is this leg that would have delivered most of the economic benefits from the whole project, and was fundamental to the Northern Powerhouse rail concept.

Why is this relevant to an accountancy firm whose clients are predominantly located in the South East?

Give me 5 minutes of your time, and I’ll tell you by talking about Inheritance Tax (IHT).

The political party conference season is over and very contrasting pictures are emerging, not least in the areas of personal tax.

Now we would not dare to suggest how anyone should vote – that is a deeply personal decision with many more factors that tax in play – but we do dare to suggest that both the Conservative and Labour parties are muddled in their thinking on IHT.

In the lead up to the conference season there has been a lot of talk about IHT. The mood music is that, broadly, the Conservatives want to abolish it and Labour want to remove the reliefs that allow some high net worth people to significantly mitigate their IHT exposure.

Both these ideas are wrong.

Why would abolishing IHT be wrong?

Firstly, it raises quite a lot of money, and will increasingly do so going forward. In the tax year 2021-22, IHT generated £6.1 billion in revenues for the Government. Over the next decade that is anticipated to increase to £15 billion a year.

For those who believe that tax cuts have to be paid for, this would require quite a shift from one tax to another or cuts in public spending. For those who believe that IHT is part of increasing social mobility (generally not the same people as the first) again this is a big number and a significant step towards that aim.

Secondly, some say IHT is wrong in that it taxes income that has already been taxed. For the overwhelming majority of estates, and indeed taxable estates, this is not the case. Most of the value in taxable estates derives from gains on principal private residences that have never been taxed.

Jean Baptiste Colbert, the 17th century finance minister to Louis XIV famously said “the art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.”

It continues to hold true. By definition, IHT is only in point when the person with the assets no longer needs them.

Why restrict the reliefs?

Agricultural Property Relief (APR) provides (subject to various conditions) relief from IHT where land and buildings are used for the purposes of agriculture, even where the land is farmed by someone other than the owner.

Yes, some very wealthy investors own a lot of land. According to the Government’s recent Rock Review on UK farmland, 65% of all farmland in the UK is now occupied by tenants or part-tenants, as opposed to owner-occupiers.

So, why should tax relief be granted to landlords of farmland, but not other investment properties?

In many cases farming is a marginal economic activity. It is the larger farms, that can make long-term investment decisions that are generally more profitable.

What would be the impact if Agricultural Property Relief (APR) was restricted?

Farms would have to be sold to pay tax due, and this could mean lack of certainty and stability for the tenant farmers who do so much to maintain the landscape of the UK. It could also create significant disruption in the farmland market, creating uncertainty and instability in land prices, meaning the banks would be less willing to lend to fund land purchasers, including for owner-occupiers.

Farmers would not invest if they knew that their land would have to be sold to pay IHT, or that their tenancy may not be renewed due to the landlord having to sell the land to fund tax payments. It would make little sense for a farmer to invest in orchards or vineyards that shape the landscape in the Kent and Sussex as they often have a 10 to 20 year span before becoming profitable. We risk becoming like France where landholdings are split up due to the compulsory inheritance laws, which could have a detrimental effect on our landscape.

This is not to say that there cannot be any reform; as with heritage property a conditional exemption for farmland that lasts as long as the land continues in agricultural use might be a more workable solution, if less headline grabbing option.

Any person or company making a business investment desires certainty, and that is something in short supply with our current political leaders.

So, this is not a predictions piece; it is a call for what we would like to see:

WHAT DO WE WANT? – CONSISTENCY

WHEN DO WE WANT IT? – Actually, pretty much all the time would be good, thank you very much.

Join our Autumn Statement question time webinar on Friday 24 November at 9:30am – 10:30am to find out how you can adapt to the announced changes.

Our panel of experts will be on hand to answer your questions and highlight key implications for businesses and individuals.

You can submit your questions prior to the webinar or alternatively, pose them to our panel during the live event via the ‘Questions’ box.

To keep up to date with all our Autumn Statement commentary, see our news and insights.

Click here to book your place.