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I'm going to start this episode of Marin Talks Money with another reminder for all of your Marin Talks Money listeners. I have launched a weekly Marin Talks Money newsletter. It is the only place, well, except for John's newsletter, of course, to get micro to micro thoughts on your money and investments. The second one hits your inbox on Saturday. It's for Bloomberg subscribers only, so be sure to sign up at Bloomberg.com slash newsletters or check out the link in the show notes, but it'll take you right to it.
Welcome to the Merritt Talks Money Weekly Roundup, our debrief on the biggest stories and markets and economics. I'm Merritt Samsepp Webb, Editor-at-Large for Bloomberg UK Wealth.
And I've joined Step Ex, in your report, an author of the Money Distilled newsletter. OK, I'm putting that down as a first, John. Actually, remember to introduce himself. Yes, yes. I'm getting there. There'll be other weeks for you to sit there and wait for me to do everything. Right, listen, John. We've got a few important things to talk about. I'd say some people would say that farmers and inherent taxes, not the most important story of the week. I would say it might be the most important story of the week. So they're very, very angry. You've written about this. Why are they so angry?
Well, the angry kids have been asked to be in head and stacks and they weren't being asked to pay it before. And everyone hates in head and stacks in the first place for reasons we can talk about if we went to, but probably not. But more importantly, the issue with farmers, actual farmers, and a lot of them made this point is that their land is worth a lot of money, but it doesn't generate a very big return. In fact, from some of the figures that they put out, you're like,
How does anyone level in this is? Yes, you think they're making less than a 1% return on capital, a 1% return on the value of the land. Yeah, and so basically, if you get charged an Eridan's tax one, even though it's a 20% and even a law, broadly speaking, is over 3 million pounds. No, no, it is not. It's over 3 million pounds. If you've got a wife or a husband who you can share it with, and I have to say, we're speaking to a farmer the other day who said to me, you know, when a government gets to the point where they're grasping at straws, like,
If you're married, it's more. They're really in a whole pile of trouble. But I mean... It's not really 3 million, then is it?
No, it's not even, but I mean, how many single like, I mean, I don't know. But you know, we don't normally make. In fact, we very explicitly have not over the last couple of decades made policy to suit married people. You know, we have not made a big thing out of using the tax, the tax system to incentivize marriage. Yeah. So to now turn around and say, do you know what farmers get married is slightly weird policy take. Anyway, that's an aside.
We're not going to get bogged down and in and stuff. To be that way, just because, you know, there's no family residence. There's always a stupid thing, but... Another time. There will be a whole personal finance podcast on why you should get married. We should do that. It's nice to be married, too, by the way. It's nice to be married, too, by the way. Oh, yeah. And also, actually, why are you doing people get married? It's like, that's OK. Stop! Stop!
Right, farmers, farmers are not making much money, they've been big cuts to their subsidies, big shift in the way subsidies are paid, away from acreage towards more sustainable biodiversity, blah, blah, that kind of thing. Lots of uncertainty, nasty supermarket, it's very low margins, rises to minimum wage, NI, all this stuff.
eating away their income. We see this very low return on capital. Then you get whacked with a great big inheritance tax bill and they say, well, it's all fine. You get 10 years to pay it. But if you're making almost nothing, paying a half a million quitter, 800,000 pounds or whatever it is from your five million pound farm.
isn't going to happen anyway. So they end up selling. And there's an argument about how many people will pay this tax and how many people will have to sell, et cetera. Numbers range from the government saying, almost nobody. Only a third of firms will be liable. 500 farms a year. It's almost nothing to other people saying. Basically, it's everybody except for the hobby farmers. You know, and if 500 farms a year are hit by it, and those are the medium size farms, because let's not forget that the very, very big ones
will have a way to mitigate and also sell bits of land without destroying their families, livelihood, etc. So up the top, probably fine. Down the bottom, and the hobby farmers, etc. The people with other jobs, also fine. Who's not fine? It's the people in the middle again.
Yeah, I mean, that's the fundamental problem with inheritance tax generally, as well. The people that at all be a much lower actual rate than the people who are just getting caught by it, even amongst Tony's like me. The practical issue underlying this is that the reason inheritance tax wasn't charged on farms and wasn't charged on business property is because you weren't family businesses and small businesses to be able to go through succession, which is already a very traumatic period for all businesses.
without also getting hit we are massive kind of like tax charge which basically boils down to a tax or in your lack of luck and you know possibly you know with enough planning and enough resources to devote to planning you can minimize inheritance tax this hasn't done anything to do that and the government basically says that it wants to target people like Jeremy Clarkson or Dyson
who do own an awful lot of farmland and that's, you know, at least partly because of its tax efficiency. Which they've both said in the past, because they buy it for their tax efficiency. You have a large amount of money, you want to pass it down to your kid's tax free. Why would you not buy farmland and do that? And then of course, even if you do leave it to your children tax free, it resets for capital gains tax, doesn't it? Post IHT or non IHT, so someone can then flip it on for nothing.
for no tax paid immediately afterwards. So it was a great way to preserve the value of your estate for your ads. And I totally see that you might say, you and I might say, let's just get rid of inheritance tax. This is a terrible task. It runs live, doesn't raise very much money. Everyone hates it, just be done with it. But clearly the government is not going to say that.
But if you must have inheritance tax, this seems like a really bad thing to add it on to, a really bad thing to add it on to. If we want family businesses and farms and other family businesses to have multi-generational lives, which we're always saying we do, we want to think long-term, we want businesses to stay in families, we want them to grow in families, etc.
This is exactly the kind of thing that will prevent that happening. So this is not just about farms for me. I mean, I think the farmers have valid points and I think we want to. I think anyway, not everyone will agree that the cultural inheritance of the UK's farming sector is important as well. Not everyone will agree with that and I understand that. But it seems to me this is about all sorts of businesses.
Yeah, and the thing is more that regardless of your feelings about farmers or otherwise, one way or the other, the point is this is a very disruptive change for businesses. And the reason that it wasn't there in the first place is because that was recognised as being a problem. The way that Labour has introduced it has just made that a problem and it hasn't addressed the things that ostensibly want to capture, which is that they want to basically stalk people from
Using what they described as a loophole whereas it's like to know it's just one of the rules and this is one of the side effects, and that's not going to happen and I mean I thought your idea, which some other people have a code as well that, as long as i'm sure i think you probably did actually but, as long as it's a going concern as long as you're still using it as a farm or as a business.
then the IHT liability should only kick in as soon as somebody had a sales the farmland to use for something else or they sell their business or the business goes public see. And then at that point, you know, it could be charged on the business.
And with that in mind, if you wanted to, you could make it 40%. What you're trying to do here is encourage longevity of a business. It doesn't really matter what the rate is on sale. You could align it with other inheritance tax rates. And the other idea, by the way, that was our first thought to the war. You could do is say, OK, you have to pay inheritance tax, but you don't really have to pay it unless you sell. And also the idea being that that liability arrives
on death, on the farm being passed down, but it then declines over the years. So if you keep the farm for 10 years, then by the end of their 10 years of liability, it's probably gone, right? But RSM, the accountants, they had another idea about putting IHC to one side completely and saying, well, actually, why don't we do it another way?
and have these assets attract capital gains tax. So at the moment, if you die, the capital gains on any of your assets are effectively wiped out for tax purposes, right? Which is kind of a weird glitch in the UK tax system. So how about this is their idea? Instead of the capital gains liability being wiped out, it remains. And in the same way we've discussed with inheritance tax, it stays with the farm or business until sale, at which point it's payable.
Yeah, I think that makes an awful lot of sense. There's basically a delaying tax payment until the money exists. And this is one of the weird things about IHT in this context is the best way to get in big tax revenues is to charge people tax when they have money, which is one of the reasons that we've discussed this before. We don't understand why it is the buyer who pays stamp duty on the exchange of property as opposed to the seller. Who's the one with the money? The seller. And if the purpose of tax is to raise tax revenue,
then charge people when they have money, not when they don't have money. And that's the big flaw from the purposes of a revenue collector in this idea. This is a stupid, stupid idea. The other thing that I did want you to very quickly ask if we get a team is because I am baffled by the fact that from a financial person's point of view, the idea that you've got this asset that is somehow worth millions of pounds, but the yield is some team sub 1%.
Why don't you sell it all and put the money in gilts? Is the way the main set works? And it's also how can anything have a yield of 1% is shouldn't the yield should be at least five, which means that the capital value of the land should come down? So what is the story there? Well, there's a lot of competition for land, isn't there? There's the actual farmers and actual farmers, generational farming families, they don't want to sell their land.
They like being farmers. They like living on that land. They like their lifestyle. This is what they want to do is what they've been, their families have done for generations, etc. Why would you not do that? Just because the land underneath you has changed in value. Right? It doesn't make sense to farmers to sell the land. They want the land.
And then this competition for land from the lifestyle farmers, people who want big gardens, people who like to have estates, people who like to shoot or whatever it is people like to do on land. Land is something people own for reasons other than just to make a yield from. In that sense, it's a luxury product as well as being a utility product. It's both things. And that's something that can make the price high. And then there is argument about whether the tax relief has pushed up the price of land
or not. I would say it probably has, because it certainly pushed, as you say, the Clarkson's and the Dyson's into the business of the Bank of Ireland. And there is a conversation about the extent to which the subsidy system changes the price of land. Did the price of land in the UK start going up when the European agricultural subsidy system was changed, such that subsidies were paid per acre, as opposed to whatever it was before, which I can't quite remember. So there was a change there. And the price of land did look like it started to move then.
And the other thing to ask is just a price of land in the UK, simply a function of the everything bubble. Look at a graph of land prices. They definitely do start to go up before interest rates started to fall dramatically, but they go up a lot faster as we move into the zero interest rate world. So it's part of the everything bubble at the same time.
Yeah, between 2000 and 2007, the rocketed. And because I guess the other issues, the commodities bubble was around about then as well. And they seem to have gone up a lot with a kind of soft commodities bubble. Because they didn't dip much in 2008, which was interesting. So there's a lot going on here. And this change to the tax rule seems like a bad thing. I can't see the government backing down because they look so bad already. Why would they make it worse?
But between us, John, we have just given them a way out. Rachel Reeves, we've offered you a way out. Take it. Save yourself.
Right. What else should we talk about, John? Can we have inflation? Because this isn't going to do anything for that. Yes, it's not going to do anything for that. Well, inflation, inflation, inflation data just came out this week and it came in a little bit higher than everyone was expecting. 2.3% is, it's not so much a big deal in itself. It just points the interest rates staying higher for longer. And, you know, the Bank of England,
This interest gives me an Andrew Bailey about six weeks ago after the Fed had cut interest rates by half a percentage point. He was kind of like, oh, we might need to get more aggressive about this. But he very quickly changed his tune because the US data keeps coming in quite nicely. And UK inflation is now likely be hitting 3% at some point next year. So it can be very hard for them. They do very much with interest rates, except lower them very gradually.
And I think the biggest impact from that is that the housing market is probably going to stall again because mortgage rates are going back up. They got almost as low as about 3.8% early this year for five-year effects. Now you can't get a five-year effects for below 4%. I've seen an email from LNC told me that this morning. So yeah, I think that
I think it's been kind of like upbeat in the UK economy, roughly since everyone was panicking about it back in 2022, but now... Backing off their journey. Going back off a bit, it just feels as if it's getting... Everything's looking as if it'll stall. Consumers are getting slapped around by the government. It's not really an environment that feels like... Let's go for growth.
Yeah, but listen, here's your regular reminder that there is no correlation whatsoever between a country's GDP and performance fixed on market. Do see, we're not going to talk about the UK stock market now, but putting a link in the show notes that you should click on that talks about the UK stock market and why it might just be a global safe haven at the moment.
Thanks for listening to this week's Merriam Talks Money debrief. If you like our show, rate, review and subscribe wherever you listen to podcasts. Also, be sure to follow me and Jon on X, or Twitter, at MerriamSW and at Jon underscore Steppek. This episode was produced by Sam Masadi, production support and sound design by Moses Andam. Questions and comments on this show and all our shows are always welcome. Our show email is MerriMoneyatbloombuk.net.
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