There’s a lot of debate at the moment about the impact of the new imposition of inheritance tax on farms. The new budget proposals from HMG include imposing inheritance tax of 20% on any farm valued above £1m. The Government say it will only effect 500 farms, the NFU says it will be 70,000. That’s quite a big difference.

But nobody seems to be sharing their calculations. Especially Rachel from Accounts.

This is where I can help. Since I know nothing about farming, I’m terrible at growing vegetables and my training in estate taxation economics hasn’t begun yet, I’m clearly the ideal person for the job. I do have a Diploma in Music, though I’m doubtful if that will be much help.

Here goes…..

A quick Google online says UK farms range from the small (20 acres) up to large (over 1000 acres). The average (mean) size of a UK farm is 88 hectares – or 217 acres. (The median might be more representative for the following estimate, but since I can’t find a figure for it, the mean will have to do for now). Another look online says the current  agricultural land prices range from a little over £10,000/acre for good arable land, down to about £7000/acre for less good pasture land. So for these calculations I’ll take a rough average of £9000/acre.

So an average farm includes land to the value of £9000 x 217 = £1.95M.

Of course, there’s more to a farm than that – farmhouse, buildings, barns, equipment etc. So lets assume that’s another £1M at least, and more for prize livestock.

How that translates into a number of farms is not clear, but it’s probably safe to assume a very large number of farms will be affected and the lower figure looks unlikely. For example, based on the above figures, small farm may have buildings worth £500,000 and will be subject to inheritance tax if it has more than 56 acres of land.

But we should note the budget is bound to reduce land values, so that might reduce the number.

But here’s the thing: farming profits are low – a few % at best, so most farmers have been having a tough time of it recently. (See episodes of “Clarksons Farm” on Amazon Prime for details). They tend to be asset rich, but cash poor. This means that on a farmers death, the average farming family will have to find £400,000 to cover tax, and the only way of raising it is to sell some of their land.

Now, Rachel from accounts may have lied about her experience as an economist, but she’s probably not stupid either. She, and her team, can do these calculations too and will appreciate their impact. So, what is their real motive in the budget? Redistribution of land, freeing up land for solar farms or housing, or … err, what? We should be told, and if it is part of a strategic plan to change the makeup of rural Britain, it really should have been in the Labour Manifesto prior to the election.

Whatever. These figures are probably wildly inaccurate, but at least they’re something to discuss.

Any other views out there?