'It's had a chilling effect' - Almost half of farmers stop investing with impact of tax changes

Farming industry leaders have called for “urgent talks” with chancellor Rachel Reeves.

Scottish farmers have said tax changes have had a “chilling effect” on the profession as new figures show nearly half across the UK have stopped putting money into their businesses.

The comments come almost six months after the UK government announced those in the agriculture sector would no longer be exempt from inheritance tax.

Chancellor Rachel Reeves also announced in the budget last October that funding for farm subsidies would no longer be ringfenced for the devolved nations.

Instead, it would be integrated into each nation’s block grant through the Barnett formula - allowing governments to spend it on other areas.

New independent research by CBI-Economics, which involved more than 4,000 businesses and farms across the UK, found 49 per cent of farmers have paused or cancelled investment in their businesses.

The figures showed around a third (34 per cent) have deferred or reduced investment, while 10 per cent have downsized farming operations.

A fifth (21 per cent) of farmers plan to downsize before April next year, according to the figures, with 14 per cent planning to sell off assets or parts of the farm.

The data was included in a letter to the Chancellor this week from the National Farmers Union Scotland (NFU Scotland), which called for “urgent talks” with ministers about the impact of the tax changes on the sector.

It said the decline in agriculture investment was also driven by current policies relating to taxes on double-cab pick-ups and the Carbon Border Adjustment Mechanism (CBAM), a carbon border tax created by the EU with the aim of reducing carbon emissions.

Without changes, the union said there will be a decrease in UK food production, leading to inflationary pressures for consumers and affecting numerous businesses connected to farming.

It said a stalled and declining agricultural economic investment will also cause long-term contraction of the rural economy and the decline of rural communities.

NFU Scotland’s president Andrew Connon said: “Farmers across Scotland are already pulling back investment, cutting jobs, and in some cases, being forced to walk away from their businesses.

(L-R) Andrew Connon, NFU Scotland president, Aled Jones, Cymru President, Tom Bradshaw, NFU President, William Irvine, Ulster Farming Union President. Four Farming Union leaders showing their support for the Stop The Family Farm Tax campaign at the NFU London office. The NFU held a press conference after meeting with the Treasury to provide an update on discussions over changes to inheritance tax for agricultural property and businesses on Tuesday, February 18.

“We understand the pressure on public finances, but if the Government wants economic growth, it must start with food security and the rural economy.”

As it stands, farms are almost entirely exempt from inheritance tax – thanks to two policies called Agricultural Property Relief (APR) and Business Property Relief (BPR).

But under UK government plans, due to take effect from April next year, these reliefs will together be capped at one million pounds – so farm land and farm assets over that value will be subject to inheritance tax at 20 per cent.

In the current farming climate, with the likes of land prices and machinery costs, rural experts have said it does not take much for a modest farm to add up to £1m in value.

Farmers, in many cases, will also be impacted by the hike in employer's National Insurance Contributions (NICs) this month from 13.8 per cent to 15 per cent, with the secondary threshold (where employers start paying NICs) decreasing from £9,100 to £5,000.

Scottish farmer Archie Slimon, who farms 2,000 acres with his family near Newtonmore in Badenoch, in the Highlands, said the changes in inheritance tax for those in the agriculture sector is his biggest concern at the moment.

He said Breakacky Farm, which has been in his family since the 1930s, will now receive “a hefty cheque every year for the next ten years.”

“It’s already cost us thousands of pounds so far,” he said.

“We have had to employ a land agent to get a valuation done and our lawyer is also in the middle of it to try and get things sorted to try and mitigate the tax as much as we can.

“Whichever way it goes, it’s not going to be great.”

Archie Slimon with his wife, Cathy | Supplied

The farmer, who has a herd of 75 suckler cows and 1,100 black-faced sheep, said current calculations show the family will have to pay about £17,000 every year for the next decade due to the tax changes.

“It’s not as bad as we initially thought, but it’s still a lot of money,” he said.

“And it’s enough to make farmers stop and think about investing or buying more land.

“We have two sons coming behind us and it makes me think this creates less of an incentive for young people to be in farming.

“There are also a lot of outside buyers of land at the moment, with people who want to rewild, including big corporations who aren’t affected by inheritance tax, and many of them are buying up some of the best of farmland which isn’t great when it comes to food production or food security.”

But Mr Slimon pointed out it is not just the farmer impacted by the looming changes.

“There are lists and lists of folk getting pushed out because of these changes in agriculture, which is disheartening,” he said.

“There’s lots of money that passes through our hands quite quickly as farmers. You have everything from agricultural engineers to the vet, feed suppliers to the marts.

“You have a lot of people affected upstream and downstream by a downturn in agriculture.

“It just puts a chilling effect on the whole job of being a farmer.”

NFU Scotland estimates that about 67,000 people in Scotland are directly employed in agriculture.

It said a further 360,000 are dependent on the sector.

Mr Slimon said changes in farming subsidies across the UK, with a new framework in place this year in Scotland, has created a lot of uncertainty in the sector already.

But with the added impact of the tax changes, he said it gives farmers an even more uncertain future.

“The tax is just another big hit,” he said.

“It shows how ignorant the government is about the state of agriculture. It claims feeding the nation is the number one priority but it seems to have been dropped down on the list.”

The UK Government has been contacted for comment.

There have been different claims about how many farms will be affected with the tax changes. These vary from as many as 70,000 overall to as few as 500 per year.

The Treasury have previously claimed that about a quarter of farms will be affected by the changes – about 500 in a single year.

Farmer groups have said this could be an underestimate as it doesn’t take account of diversified farms – those are farm estates which also run other kinds of businesses like B&Bs alongside their farming activity.

Meanwhile the Country Land and Business Association (CLA) claims more like 70,000 farms will be affected by the changes – which equates to about a third of all farms in the UK. The reason for the huge difference in figures is the Treasury looks at how many will be affected in a single year, while the CLA estimates how many farms in the country could ever be affected by the forecast changes.