The plight of Scottish tenant farmers facing the current Inheritance Tax (IHT) proposals was brought into focus earlier this week during a Westminster Hall debate.
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Scotland
The debate was held in response to a petition signed by almost 150,000 people from all corners of the UK, calling for changes to the family farm tax.
Liberal Democrat MP for North East Fife, Wendy Chamberlain, accused the Government of failing to consider the impact of its proposed IHT changes on Scottish tenant farmers, despite raising the problem ‘four times in the last three months' through various channels.
Tenant farmers
"I do not think they have looked at this at all."
She said agricultural tenancies in Scotland held under the Agricultural Holdings (Scotland) Act 1991 had an ‘inheritable value', and there were circumstances in which a tenancy could be passed on via someone's will, rules of intestacy or sometimes as a lifetime gift.
"Any tenancy to which that law applies can be passed on by the tenant as part of their estate.
"The tenancy is valued per acre according to the difference between market rates and the actual rent, because these tenancies have much lower, preferential rates."
Agricultural Property Relief
Ms Chamberlain said according to Central Association of Agricultural Valuers figures, it would mean the average value of lowland arable land, for example, would be £3,000 to £4,000 per acre.
Therefore, she said a tenancy of 300 acres breached the Agricultural Property Relief (APR) threshold and would start paying APR, and that was before taking into account the value of machinery.
"We have heard broad concerns about the future of farms if they are forced to sell land piecemeal – that just is not an option available to tenant farmers."
Perceptions of farmers
She said the perception that farmers were ‘wealthy individuals' must change.
"A constituent I spoke to last week is a farmer, previously a tenant farmer; she bought her farm eight years ago with her family, under a mortgage, and is now transitioning from Working Tax Credit to Universal Credit. We need to deal with that myth, and I urge the Government to pause this policy," she said.
Efra committee chair and Liberal Democrat MP for Orkney and Shetland Alistair Carmichael called for the Treasury to ‘pause and reconsider' the policy, echoing concerns for tenant farmers in Scotland.
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Treasury
"What consideration was given in the Treasury to the very particular position of tenants in Scotland who hold their tenancy under the Agricultural Holdings (Scotland) Act 1991?
"Essentially, the situation there is that a 1991 tenancy gives rise to an asset that is a chargeable asset for taxation purposes, which survives death; but because they are tenants, they do not have an asset that they can sell on in order to pay their tax bill. That seems to me to be a point of fundamental inequity."
Budget
He asked if Ministers had failed to consider tenant farmers before they put their proposals in the Budget, what else had they given insufficient consideration to.
SNP's Dave Doogan, who represents Angus and Perthshire Glens, said the current plans ‘did not go after the non-farming interests that are avoiding tax'.
"It ignores the disproportionate effect on Scotland. It ignores the fact that a quarter of Scottish farms are tenanted – it has zero provision for those – and it does not take cognisance of the 15,000 Scottish crofts that are grossly adversely affected by it.
'Economically incoherent'
"This policy is economically incoherent. It is a tax on the production of food. It will precipitate a reduction in investment. That will mean lower yields, which will mean higher prices. That will be inflationary, which is the last thing that this economy needs. It is not just farmers who will be undone by this policy; it is the entire agricultural supply chain."
Exchequer Secretary to the Treasury James Murray said the Government was aware of the IHT treatment of Scottish agricultural leases, and that officials had already discussed it with their counterparts in Scottish Government.
"There is an existing provision in the Inheritance Tax Act 1984 that deals explicitly with the Scottish agricultural leases. Section 177 of the Inheritance Tax Act means that Scottish agricultural leases passed down on death are not included in the value of the estate," he said.
Scotland's First Minister
Speaking at NFU Scotland conference last week, Scotland's First Minister, John Swinney, said he was concerned that tenant farmers in Scotland were at risk of being caught up in the tax change.
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"As we know, Scottish law on agricultural leases is different from those south of the border, and it is far from clear that the Treasury understood that significant distinction in this particular change that is being brought about."
He said it was important to stand together as 'one clear voice' to reflect the unique circumstances in Scotland caused by the legal frameworks in place and ensure they are properly understood.
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