Britain's farmland has become a tax-haven; who dares reform it?
mark at tlio.org.uk
mark at tlio.org.uk
Tue Mar 22 11:10:15 GMT 2016
Interesting - could be important move toward LVT...?
Britain’s farmland has become a tax haven. Who dares reform it?
With soaring prices and generous tax breaks, speculation on agricultural land is putting housing development at risk. The Scottish government could offer a fairer way forward to end this abuse
by Peter Hetherington
Land in Britain has become the safest investment for those with a few spare millions to offload. Prices are up by a staggering 277% in a decade, according to Savills market survey of UK agricultural land 2015. Prime London property has risen by a mere 127% in the same period. Taking a cue from Mark Twain – “buy
land, they’re not making it anymore” – institutions and the rich are queueing up to get their hands on the country’s most basic resource.
When a property developer last year offered David Archer £7.5m for Brookfield Farm, in fictional Ambridge, the long-running BBC Radio 4 drama faithfully reflected the direction of prices for prime farmland. In the 1994-2004 decade they rose by just 41%. Brookfield was then valued at a mere £1.5m.
Arguably, Archer eventually saw sense. He backed out of the deal at the 11th hour. With farmland offering the ultimate shelter from inheritance and capital gains tax, owners are hanging on to what they’ve got. But, as he discovered, they can be confident of a substantial profit if they ever decide to sell – and of a windfall if planning permission is granted for housing, which clearly motivated the fictional Ambridge developer.
When the 40,000-acre farming business of the troubled Co-operative Group went on the market in 2013, fears of a speculative free-for-all were rampant. It marked the biggest sale in farmland for many years. The Wellcome Trust – the world’s second-largest medical research charity – stepped in and paid £249m for the
business. Land agents Savills, which acted for the Co-op, said the sale marked “an absolute endorsement of the market” – and the Wellcome Trust used Mark Twain’s oft-quoted comment to underline the value of a finite resource.
Earlier this year a new player moved into the market to become the first arable landowner seeking a stock market listing. Edinburgh-based Greenshields AgriGroup, founded in 2010, owns 2,860 acres in Northumberland and south-east Scotland, and farms another 640. It aims to raise 3m to buy more land. Much of its appeal lies in the investment potential of British farmland. A company spokesman said its shares would probably qualify for exemption from inheritance tax.
Around 150,000 acres of agricultural land now comes on to the market in England annually, four-fifths less than in the 1970s – hence its rapid appreciation. Land, in effect, is being rationed through a variety of wheezes – not least in an unregistered “shadow” trading market. The losers are the vast majority of people aspiring to become homeowners, or more likely tenants, in a market that handsomely rewards a few at the expense of the many.
Across the political spectrum, local councils – at the sharp end of a housing crisis – are getting angry and nowhere more so than in south Lincolnshire. Earlier this year, a local Conservative councillor exasperated by the rocketing price of development land threw political caution to the wind. Roger Gambba-Jones railed: “The major cause of our housing crisis is the price of the land. The owner of a field can increase its agricultural value a hundred-fold [if he sells] for commercial development and 200 times for residential.”
Little wonder that despite allocating sites for housing in a local plan, authorities like his own – South Holland district council – were powerless when potential building land remained undeveloped because, says Gambba-Jones, “the owner is holding out for the top dollar”.
Currently, agricultural land is going for £10,000, or more, per acre. But on some estimates, land with planning permission for development can be worth 250 times more than farmland. With prices for building land heading into the valuation stratosphere, a shadow market has emerged. The gain in value from planning permission encourages a high level of land trading, rather than development – primarily for housing – resulting eventually in windfalls for the landowner rather than for the local community.
Last year, a housing review commission chaired by the former chief executive of Birmingham city council (and former BBC chairman) Sir Michael Lyons warned that an artificial scarcity of land was distorting the housing market, limiting building and “incentivising the acquisition and trading of land”. The commission spoke of six firms of land agents alone holding strategic land banks of 23,000 acres – enough for up to 400,000 homes at current building densities. It expressed particular concern that “non-developers” – farmers, landowners, institutions – were holding on to land either under an option or with planning permission. Although they had no intention of currently building, according to Lyons they “may be motivated by speculating on future land values”.
“Options” are a familiar tool in the arcane development world. They involve a legal agreement in which, say, a volume builder reserves land from an owner and buys at a later date. This land is not available to others who might want to build more immediately.
Clearly, we need to know the scale of this activity if we are to begin addressing the pressing need for more housing. Perhaps this could be achieved by making it a legal requirement to register land option agreements with the Land Registry, bringing transparency to this unquantifiable shadow market.
Ninety years after the registry was tasked with detailing the ownership of all land in England and Wales, around 15% remains unregistered. Full registration was scheduled for 2011. Remarkably, there is no compulsion. The writer and campaigner Kevin Cahill has noted that that failure reflects the way the
registry was constructed “by lawyers on behalf of landowners designed to conceal ownership, not reveal it”.
Agriculture is the last great subsidised industry. It gets several billion pounds annually from taxpayers through the European Union’s common agricultural policy. For investors, it is recession-proof. Regardless of any downturn in the world economy the subsidy cheques keep rolling in.
Furthermore, agricultural land also offers generous tax breaks. It is exempt from inheritance tax after two years if it is actively farmed. And additional relief allows the sale of a farming asset to be rolled over into a new business or acquisition. Capital gains tax is thus deferred until the sale of the asset. By any reckoning, this amounts to a substantial, hidden state subsidy. “What does the state get out of it?” asks George Dunn, chief executive of the Tenant Farmers’ Association. “Not much … for those with a lot of cash, made through
capital gains elsewhere, land provides the complete tax solution … run it as a ‘sham’ farming operation [run] by another individual on a short-term basis, you take no risk. And when you pass away there’s all this tax relief.”
So what to do in this intensive trading market, with prime land at a premium? The Scottish government’s cabinet secretary for rural affairs, Richard Lochhead, challenged the UK government’s laissez-faire attitude to land taxation at a farming conference earlier this year. He pointedly told an English agriculture minister: “Our struggle is to make more land available to let. You and your colleagues could make a difference by taking fiscal measures quickly.” The junior minister George Eustice replied: “Property ownership and property rights
are the fundamental of a free market.” Rarely are the differences between an English and Scottish minister so publicly exposed.
In Scotland, where 83% of land is privately owned, the SNP government will shortly introduce legislation giving it powers to intervene if the scale of land ownership and the conduct of a landowner is considered a barrier to sustainable development. It also plans a Scottish land reform commission to help tenant farmers buy their holdings, amend the rights of succession so landowners can no longer leave estates to a single heir, and reintroduce business rates on sporting estates. This will help fund the doubling of community land ownership to one million acres to create “a fairer and more equitable distribution of land”, says Lochhead.
As he told me: “Any reasonable person would look at Scotland and recognise that the concentrated pattern of land ownership – Europe’s most extreme – can be an obstacle to economic development and … communities having a say over their own destiny. It is a concentration of power and wealth that should be shared.” While
in quiescent England the prospect of Scottish-style legislation remains slim, could the reformist waves from Scotland ripple across the border?
• Whose Land is Our Land? The use and abuse of Britain’s forgotten acres by Peter Hetherington is published by Policy Press
Ref: http://www.policypress.co.uk/display.asp?K=9781447325321& http://www.policypress.co.uk/display.asp?K=9781447325321&
Peter Hetherington’s Whose Land is Our Land? discussed on BBCRadio4 Thinking
Allowed originally broadcast on Monday 14/12/15. On iPlayer at:
Land Ownership, Home at work
Thinking Allowed, BBC Radio4
Land ownership in Britain: Laurie Taylor explores our forgotten acres. He talks to Peter Hetherington, writer and journalist, as well as author of a new book which asks if food security and the housing of the nation is being thwarted by record land prices and speculation. They're joined by Michael Edwards, from the Bartlett School of Planning at University College, London. Also, how employees create a sense of 'home' at work. Rachel Hurdley, Research Fellow in the Department of Sociology at the University of Cardiff, discusses her study of the ways in which people conjure feelings of belonging and intimacy in impersonal work spaces.
Producer: Jayne Egerton
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