Inheritance Tax Changes for Farmers: Analyzing the Impact
The government’s recent Budget proposal to modify inheritance tax for agricultural assets has sparked intense debate about the number of farms that will be affected. The proposed changes, set to take effect in April 2026, would subject inherited agricultural assets over £1 million to a 20% inheritance tax.
Competing Claims and Estimates
The Country Land and Business Association (CLA) claims the tax change could “harm” 70,000 UK farms, representing about 33% of all farms. In contrast, the government estimates only about 520 inherited agricultural estates will be impacted annually.
The National Farmers’ Union (NFU) presents a different perspective, suggesting that:
– 34% of farms are under £1 million net worth
– Around 75% of commercial family farms will be above the £1 million threshold
Data Challenges and Interpretation
Several factors complicate the precise calculation of affected farms:
1. Defra’s Farm Business Survey, based on 1,350 farms, suggests:
– 17% of farms have a net worth between £1m and £1.49m
– 49% have a value of £1.5m or more
– However, the survey is not necessarily representative of the entire UK farming sector
2. Ownership complexities:
– Multiple farms can be owned by a single person
– Farms can be jointly owned
– These factors affect how inheritance tax is calculated
3. Relief Types:
– Agricultural Property Relief (APR) relates mainly to land value
– Business Property Relief (BPR) includes machinery and livestock
– Both reliefs will be capped at a combined £1m
Expert Analysis
Independent experts like Arun Advani from CenTax and David Sturrock from the Institute for Fiscal Studies find the government’s estimates credible. They argue that the number of affected estates is likely closer to 500 per year, not the 70,000 claimed by farming groups.
Potential Higher Threshold
The government suggests an effective inheritance tax threshold of £3m for many farming estates, considering:
– Standard nil-rate band of £325,000
– Residential nil-rate band of £175,000
– £1m agricultural assets allowance
– Ability for married couples to combine allowances
Nuanced Considerations
– The NFU argues that excluding small estates would increase the percentage of affected working farms
– The actual impact depends on individual circumstances
– Farmers may need to spend more time planning tax arrangements
Conclusion
While farming groups argue the changes will significantly impact farms, government data and independent experts suggest a more limited effect. The true impact will depend on individual estate circumstances, ownership structures, and specific farm valuations.
