Inheritance Tax Changes for Farms Spark Controversy
Farmers are mobilizing to protest recent Budget changes to inheritance tax for agricultural assets, with a planned lobby of MPs and rally near Parliament. Starting April 2026, inherited agricultural assets over £1 million will be subject to a 20% inheritance tax, compared to their previous complete exemption.
The controversy centers around conflicting claims about how many farms will be affected. The Country Land and Business Association estimates that 70,000 UK farms could be impacted, but this figure represents the total number of farms potentially valuable enough to be subject to the tax, not the annual number of farms that will actually pay.
Experts provide nuanced perspectives on the potential impact:
1. Farm Valuation Estimates:
– About 30-35% of the UK’s 209,000 farm holdings could be valued at over £1 million
– Farms over 200 acres are most likely to be affected
– English farms are expected to be hit hardest due to higher land values
2. Annual Impact:
– The Treasury estimates approximately 500 estates with agricultural land will be affected annually
– In 2021-22, HMRC data showed 462 inherited farms valued above £1 million:
– 345 farms between £1m-£2.5m
– 80 farms between £2.5m-£5m
– 37 farms above £5m
3. Tax Mitigation Factors:
– No inheritance tax is due on the first £325,000 of an estate
– Married couples can pass on up to £2.65 million tax-free
– An additional £175,000 tax-free allowance exists for main residences passed to children or grandchildren
Government officials, including Environment Secretary Steve Reed, emphasize that the “vast majority” of farmers will not be affected, with only the “richest estates” being asked to pay.
Financial Challenges for Farmers:
Experts like Sam Kirkham highlight the economic complexities:
– Farm values don’t necessarily translate to liquid capital
– Farm profits are typically low
– Average farm profit in recent years was around £45,300
– Return on capital for farms is approximately 0.5%, significantly lower than other businesses
Revenue Expectations:
– Current inheritance tax exemptions cost taxpayers about £1 billion annually
– The Treasury expects to raise:
– £230 million in 2026-27
– £520 million by 2029-30
– The Office for Budget Responsibility cautions that these figures involve high uncertainty
The changes have prompted significant debate about the impact on family farming businesses and potential implications for food security, with farmers preparing to voice their concerns directly to policymakers.
