The ‘tractor tax’ must be rethought to protect family farms

Editorial: Keir Starmer should listen to a tax lawyer who supports the government’s aims – but wants to achieve them without punitive taxation

Dan Neidle is the British tax lawyer and Labour Party supporter whose work – along with reporting by The Independent – resulted in Nadhim Zahawi’s dismissal from Rishi Sunak’s government in January last year. Mr Zahawi, the chair of the Conservative Party, was investigated by HM Revenue & Customs, eventually paying back taxes and a penalty to settle his affairs. He was found to have breached the ministerial code by failing to declare this information – which had to be extracted by Mr Neidle in the teeth of threats and bluster.

Mr Neidle cannot, therefore, be accused of being a Conservative Party stooge or a mouthpiece of the National Farmers’ Union (NFU). Indeed, he originally sided with the government in supporting the change announced in the Budget in October to reduce the inheritance tax relief on farms. He also said at the time that the claim made by Rachel Reeves, the chancellor, that few farmers would be affected by the change was “likely” to be true.

The prime minister even quoted him in support of the change.

But now Mr Neidle says that the proposed change should be modified before it takes effect in 2026. He has suggested raising the threshold for inheritance tax (IHT) from £1m to £20m, which would exclude genuine family farms while increasing the revenue from investors buying farms as a way of avoiding tax.

“We’d be taxing farmers a lot less, but IHT-exemption-chasing investors a lot more,” he says, arguing that the Treasury would still raise most of the £500m a year that it expects from the original measure. He says he is trying to find the most effective way of doing what the government says it wants to do, to achieve their aim of stopping IHT avoidance and at the same time, to protect family farms.

Two weeks ago, Sir Keir Starmer told farmers’ representatives that he was in “listening mode”. In which case he should listen to Mr Neidle. We can understand that the prime minister might think that the NFU was guilty of special pleading on behalf of a vested interest. Sir Keir might say to them that he and the chancellor are simply saying that farmers should pay the same taxes as everyone else. It is a superficially plausible argument, but Mr Neidle points out that farming is a special case.

Indeed, the government already accepts that farming is different, because its proposal is to levy inheritance tax on farms at half the usual rate. By doing so, Ms Reeves admits that asset-rich but income-poor farms need some protection if they are to continue to be worked by that same family over generations.

As Mr Neidle points out, however, that protection is not enough. Not only that, but he has provided the Treasury with the first draft of a workable alternative that would actually achieve what the government claims to want to achieve – namely to preserve family farms while discouraging rich non-farmers from simply using farming tax reliefs as a tax avoidance scheme.

If Sir Keir will not listen to the NFU or to the Conservative Party, he should listen to someone who is broadly sympathetic to his government, and who has a detailed professional understanding of taxation.