How will farmers be affected by the new inheritance tax?

Inheritance tax affects all kinds of estates, however, there are specific reliefs from inheritance tax that can and have been utilised by those with agricultural estates (i.e. farmers) for a number of years.

Currently, Agricultural Property Relief is available on assets that were used strictly for agriculture and owned for 2 years prior to the transfer of the asset. If this were the case, the estate could claim 100% relief from inheritance tax on the entirety of these assets, broadly speaking.

It was estimated in the year 2021-2022 that around 1,730 estates claimed this relief, and that 7% of these claims (117 estates) accounted for 40% of the total value of agricultural relief.

Farmers are currently also able to claim relief on business assets owned 2 years prior to death, using Business Property Relief, which gives 100% relief from inheritance tax to a trading business and 50% relief to assets such as land, buildings and machinery.

The recent Autumn Budget has announced that this relief is to change from 6 April 2026. From this date, estates will only benefit from 100% relief on the first £1 million of combined business and agricultural assets, and any remainder over £1 million will benefit from 50% relief. Anything over £1 million will also only be taxed at 20%, rather than the standard 40% inheritance tax. Farmers will also still be able to claim the Nil Rate Band (currently £325,000) as well as the Residence Nil Rate Band (currently £175,000).

The government have forecast that out of the average 1,800 estates that will claim relief in one year, 500 will pay more inheritance tax than previously, and in theory this will only affect farms that are of significant value. It has been stated that this change is intended to tax larger farms and is not to affect small farms, and that fewer farms may also be affected where the farmers are able to plan for tax effectively. Further, the Chancellor has announced that they intend to help farmers over the next 2 years with a budget of £5 billion.

However, farmers and their representatives, such as the National Farmers Union are concerned about these changes, and estimate that around two thirds of farms could be affected. The National Farmers Union have stated that 49% of farms are worth over £1.5million, and as such will be affected by the changes.

As such, there have been protests from farmers since the announcement, with fears that the changes will lead to the loss of multi-generational farms and will force farmers to sell land to pay inheritance tax, as farmers tend to be asset-rich and cash poor. Further, farmers will say that their profit margins are already very tight, and so being forced to sell land to pay a large Inheritance Tax bill could push farms into being commercially unviable. Farmers have also expressed concern regarding the combination of Business and Agricultural Property Relief, as these are applied jointly. Often there is significant value in land, buildings and machinery, before one even considers the separate value of the farm business or partnership. There is concern, therefore, that the governments figures for how many farms will be impacted are too low, and that the government is not taking into account the unique realities of farming.

The protests have highlighted the differences between the figures from the Government and those from farmers and their representatives. The Liberal Democrats are now campaigning for an exemption for working farms, so that the change would affect those buying agricultural land for tax purposes rather than those on working farms.

Unfortunately, it remains to be seen how many farms this change will affect, but it is clear that there is significant worry amongst farmers about the future tax implications that they may now face.