Inheritance Tax change a 'hammer blow' to the ambition of maintaining viable farms

In response to the Chancellor's announced changes to Inheritance Tax rules for combined business and agricultural assets, Ben Sharples, Partner, Agriculture, Michelmores said: "The announcement on Inheritance Tax is a hammer blow to the ambition of maintaining viable farms.

"The relief of a £1 million exemption aimed at preserving family farms is not going to go very far when considering land values of £10,000 per acre never mind the value of farmhouses and buildings. An effective tax rate of 20% on everything above £1 million is much more severe than many were expecting," he added.

Rachel Reeves announced reform to Agricultural Property Relief (APR), outlining:

- No changes to assets under £1M

- Assets over £1M will get a 50% relief, with an effective rate of IHT at 20%.

Sarah Wray, Senior Associate, Charles Russell Speechlys commented: “Reform of Agricultural Property Relief (APR) announced in the Budget today will raise significant concern for farmers and landowners. APR will be severely curtailed. A £1m allowance (seemingly shared with business property) of 100% relief is being introduced from April 2026, and assets in excess of this allowance will only benefit from 50% relief.

"Given land values, the impact of this reform will be felt throughout the sector; even small farms are very likely to face an inheritance bill from April 2026. In the short term we’re likely to see individuals with agricultural property seeking to "bank" the current (much more generous) reliefs whilst they still apply by transferring it into trust, or onto the next generation.

"The Spring Budget also promised to extend APR to environmental schemes. This was seen as a key development in incentivising activities which support the UK’s climate targets, but now its future remains unclear in light of these significant reforms and their wide economic implications for the farming sector.”

Country Land and Business Association (CLA) President Victoria Vyvyan said: “Labour has made repeated assurances over the last 12 months that it would not tamper with inheritance tax reliefs, and its decision to now rip the rug from under farmers is nothing short of a betrayal.

“This puts dynamite beneath the livelihoods of British farming, and flies in the face of growth and investment. We estimate that capping agricultural property relief at £1m could harm 70,000 UK farms, damaging family businesses and destabilising food security. In its attempts to raise more revenue the government will cause great damage, jeopardising the future of rural businesses up and down the country.

“Many farmers, operating on slim margins, will now face having to sell land to pay inheritance taxes. At a time of profound change in the industry, adjusting to new agricultural policies, the government is offering no vision for a positive economic future for us in the rural community. We will continue to argue the case for these vital reliefs.”

She added: “The government was elected on a promise of growth, but has done nothing for the countryside but freeze the agriculture budget and raise taxes.

“The decision to freeze the budget at the same level since 2014 – a cut in real terms – will have consequences for hard-pressed farmers, consumers and the environment. It will damage confidence and stability across the industry, risking farm profitability. It could hit sustainable food production and undermine improvements to wildlife habitats, flood management and access to nature.

“Defra’s proposal to accelerate the end of direct payments would be incredibly damaging to investment in farming and diversified businesses.

“A recent CLA survey found that 80% of respondents said they ‘strongly agreed’ or ‘agreed’ that payments through farming schemes are critical to ensure their businesses stay viable. There is enormous growth potential in the countryside, but we need the government to be working with us, not against us.”

Iwan Williams, Partner, Tax, Trusts & Succession, Michelmores, commented: "Looking at the details of the changes to APR and BPR on the gov.uk website: the new rules will apply for lifetime transfers on or after 30 October 2024 if the donor dies on or after 6 April 2026. This prevents forestalling.

"This is hugely significant. Careful thought will be required for farms, estates, and businesses, as these changes are effectively already active for transfers made from here on.

"The Chancellor's announcement that Agricultural Property Relief (APR) and Business Property Relief (BPR) is to be materially restricted from April 2026 is likely to trigger a widespread review of succession planning for businesses, farming families and landed estates. Changes to APR and BPR were mooted pre-Budget, but this still comes as a shock – it is a substantial change and will have a profound effect on farmers and estates."

As part of the budget, the government has announced the farming budget will remain at £2.4 billion for 2025/26. David Eudall, AHDB Economics & Analysis Director, said: “The funding pot for agriculture in the UK has remained constant at £2.4 billion since the 2019-24 parliament. During this time, inflation has led to a 44% increase in farm costs while the agriculture budget remains the same. We are at a tipping point of how effective this budget can be in meeting the desired outcome of balancing food security, supporting farm efficiency, and delivering environmental benefits given the inflationary pressures we see.”

In addition, in widely anticipated news, there are significant changes to the inheritance tax for UK farms. From April 2026, the first £1 million of combined business and agricultural assets will continue to attract no inheritance tax at all, but for assets over £1 million, inheritance tax will apply with 50% relief, at an effective rate of 20%. David Eudall, AHDB Economics & Analysis Director, said: "The impact of the changes to inheritance tax means that from April 2026, a farm worth £2 million will have a £200,000 tax requirement to pay on the £1 million above the threshold. For every additional £1 million the farm is worth, a further £200,000 will be required to be paid in inheritance tax."

Hear more about how AHDB think the Sustainable Farming Incentive (SFI), government policy and the wider ag-budget will impact food production in the UK at our GMO briefing next Tuesday (5th November). We will also be releasing more extensive analysis in the coming days.

Meanwhile, Retail NI Chief Executive Glyn Roberts said: “This Budget is deeply disappointing, increasing the Cost of Doing Business Crisis for local high street businesses.

“Retail NI members are working people who are struggling to pay the highest business rates in the UK. The decision of the Chancellor to add to this burden by increasing Employers National Insurance will have a negative impact on local jobs, the viability of small businesses and restrict the growth of our economy.

“This hike along with a 6.7% increase in the Living Wage is a huge cost for local independent retailers to absorb.

“The Chancellor announced a welcome 40% rates relief scheme for independent retailers and other high street businesses in England. It is absolutely vital that the Barnet consequence of this is used locally by the Finance Minister to provide the same 40% rates relief for our members in Northern Ireland.

“This will offset the National Insurance increase and allow high street businesses to reinvest more of their money to create new jobs and boost our economy.

“While we welcome decision to resume the Causeway Coast and Mid-West City Deals, both should never have been put on hold in the first place.”

Food Security Minister Daniel Zeichner said that the Government’s £2.4 billion farming budget will be 2025/26, the largest ever budget directed at sustainable food production and nature’s recovery.

He added: “Farming and food security are the foundations of a healthy and resilient economy and environment.

“Our commitment to farmers and the vital role they play to feed our nation remains steadfast.

“That is why this Government will commit to the largest ever budget directed at sustainable food production and nature’s recovery in our country’s history, enabling us to keep momentum on the path to a more resilient and sustainable farming sector.

“ELM schemes will remain at the centre of our offer for farmers and nature, with the Sustainable Farming Incentive, Countryside Stewardship Higher Tier and Landscape Recovery all continuing.

“We will also support farmers with the exceptional impact of flooding last winter, paying out £60 million for farmers affected by unprecedented rainfall and flooding through the Farming Recovery Fund.

“Our focus will be on making sure funding is used to the best effect for food, farming and nature, and that our schemes work for farms who have been too often ignored such as small, grassland, upland and tenanted farms.

“We look forward to working with farmers across the country to continue to improve and evolve our schemes and policies, to make them work for farmers and nature.”