It’s that time of year, when Business Link Magazine invites the region’s business leaders to offer up their predictions for the year ahead.
It has become something of a tradition, given that we’ve been doing this now for over 30 years.
In this edition we get insight into the future for farmers, land and property owners from Robert Cole, Managing Director of specialist land development and property consultancy Mather Jamie.
My predictions all relate to the challenges presented by changes announced in the recent Budget. Without wishing to sound too negative, I don’t think their implications have been thought through and certainly not fully understood, because at the moment, rather than being growth orientated, they are potentially disincentivising growth.
So, I think we will continue to see increasingly vociferous and even more demonstrative appeals from farmers and business leaders for a rethink on these policy decisions – because literally their business and the future of their employees and family members are at risk!
As a result, I also predict that banks will begin to get nervous about lending so freely into the agricultural sector, which in turn will stifle growth. Furthermore I predict further challenges will arise in the supply of residential properties in the rental market following the changes to stamp duty, and the increase in employers national insurance and the living wage will dampen employment opportunities as inflationary pressures impact wages across the entire salary scale.
To put these predications into context, let’s consider landowners who are usually also farmers and the implications of the proposed changes to Agricultural Property and Business Property Relief. Whilst they may well be classified as wealthy on paper due to the value of land, we should remember they also rely on this land to earn a profit with average returns in the sector amounting to less than 1% of the capital employed, and it’s an asset that only has value when sold.
Jeremy Clarkson might not be the best example to reference, but he has at least highlighted how hard farmers must work and how easily bad luck and weather can scupper the anticipated profits! We have increasingly seen how making a profit relies on diversification of farming businesses and/or investment in building a larger enterprise are key to creating the economies of scale necessary to deliver the return on investment needed to ensure a sustainable future. This Budget has sucked the life blood out of agricultural ambitions for our aspiring young farmers.
This example underlines my point:
Farmer A is aged 75, he decides he’s going to give a housebuilder an option to buy some land, with the ultimate aim of re-investment of any proceeds for future generations. At this point it is just an option – the builder can’t do anything yet as they need planning permission which may take years to approve. But because there is interest from a builder the value of the land has already increased – we call this ‘hope’ value, because whilst it increases the overall asset value of the estate there is no value until the land is sold.
However, should ‘Farmer A’ die having granted an option to a house builder or promoter, under the new IHT rules that take affect from April 2026, an inheritance tax liability is triggered immediately based on this inflated value of the estate – even though there is not yet any tangible financial gain nor necessarily will there ever be. So herein lies the disincentive – where do the beneficiaries get the cash to pay the tax bill that will now be due post April 2026? Disincentives like this will not serve the Chancellor in delivering £1.5m homes in this parliament.
It is clear that neither buying land to build a bigger enterprise or selling land where risk is attached through planning uncertainty, to create accessible wealth and family legacy are now not as attractive an option. I think this is going to lead to a lack of agricultural sector growth and investment because farming families will be more reluctant to build a legacy that ultimately burdens their beneficiaries with a tax bill they can’t pay. We will not see the full impact of this in 2025, but the affect thereafter could be very damaging for the UK’s agricultural industry and to our food security.
To compound this, changes to Stamp Duty Land Tax will impact the rental market. I predict that we shall see more second properties being sold because they are no longer such an attractive investment. Whilst on the face of it this may mean more houses for sale, the knock-on effect will impact supply and push up the rents for private rental properties – delivering a double whammy to people whose only option is to rent because they are unable to get on the housing ladder – and potentially also add burden to the social housing bill!
Whilst these are certainly worrying challenges, at Mather Jamie our job is always to work with landowners/farmers and businesses to find solutions and deliver positive outcomes and so I am trying to also be optimistic that these policies will be revisited, and the Government’s vision of economic growth will be achieved.
Beware the unintended consequences of political ideology.
