Family Farms Tax

Introduction

As of April 2026, controversially, Agricultural Property Relief (APR) and Business Property Relief (BPR) will be reformed as was announced in the recent budget (HM Treasury (2024)). Previously, there was a 100% relief on property assets; however, the government has decided that this should come to an end in an attempt to raise income to fill their ‘black hole’. The idea of this tax is to target the wealthy who purchase estates containing farmland in order to avoid paying taxes. According to Reeves, the tax should only affect around 500 farms yearly, however, this figure is largely up for debate.

Institutions such as the National Farmers Union (NFU) and The Country Land and Business Association (CLA) have disputed this, arguing that the tax will be much more damaging than the government suggests. The change set by the government is a reduction of the relief they give to businesses and farms from 100% to 50% (on property over 1 million). This means that assets above 1 million will receive a 50% tax relief on the standard 40% inheritance tax, which applies to everyone, essentially meaning a 20% tax (50% of 40%) (HM Treasury (2024)). 

Tax Details

As well as the initial tax rules, there are also further details and exemptions to consider:

-          Transfers between spouses and civil partners remain exempt.

-          Therefore, two people can combine their relief allowances and give up to 3 million to a direct descendant tax-free. This can be broken down into:

o   £1 million APR/BPR (per person)

o   £325,000 nil-rate band (per person)

o   £175,000 residence nil-rate band (per person)

o   (Data retrieved from ‌HM Treasury (2024)

-          There is also the consideration that any transfers to individuals more than seven years before death as gifts will continue to fall fully outside the scope of inheritance tax. The effective rate of tax paid on the gift tapers down from 3 years after the transfer depending on circumstances (3 to 4 years – up to 16%; 4 to 5 years – 12%; 5 to 6 years – 8%; 6 to 7 years – 4%).

The government has used these exemptions to defend their changes; however, they have still been met with much disapproval from farming and the wider community.

Arguments Surrounding the Tax

One of the main disputes surrounding the tax is the number of farms impacted by it, while the Prime Minister insists that most farmers won’t pay the tax (‌Geiger, C. (2024)), many people disagree, and different numbers have been published in dispute.

Both the CLA & NFU have stated that capping the relief at £1mn could harm 70,000 farms (Speed, M. (2024) & ‌CLA (2024)), supporting this claim; “Tom Bradshaw, president of the National Farmers Union, said the cap was far too low, pointing out that the average farm in England was 88 hectares, which would currently be valued at well over £1mn,” Speed, M. (2024) wrote. Although this is true, this figure is based on the mean. In contrast, if the median is considered, it can be seen that almost half of all farms are less than 20 hectares in size, according to DEFRA (2024).

Despite this, farmers nationwide are pleading with the government to reconsider this tax as they fear ‘parliament don’t understand the nature of rural businesses and although this is framed as a tax on the wealthy, the reality is that ordinary family farms will be hit just as hard.’ (‌CLA (2024)).

Another argument is the issue of paying the tax. Unfortunately, farming is notoriously not a very profitable business, especially farms that operate on a smaller scale, such as family farms. According to the CLA (2024), a typical 200-acre farm owned by an individual with an expected profit of £27,300 would face an inheritance tax bill of £370,000. Even with the ability to spread the payment over 10 years, this would require a farm to allocate 136% of its profit each year. Clearly, this is a big issue as people will massively struggle to foot this bill due to the lack of liquidity in farms.

Although owning a large estate with hectares of farmland may make you seem rich, this value is tied up in the land. Therefore, farms are typically ‘asset rich and cash poor’, so the expectation to pay such a huge bill with limited liquidity seems slightly far-fetched. In order to pay this bill, some farms may be faced with a less than favourable choice: take on debt or sell their land, resulting in the depletion of either their small cash profits or shrinking their farmland.

Therefore, it is understandable to see such an uproar from the farming community in the face of this tax. If it impacts as many farms and communities as some predict, it may cause great damage to an already struggling, vital part of our economy.

Reference List

‌CLA (2024) ‘Family farm tax’ could leave hard-pressed farmers paying tax bills that wipe out their annual profits   Cla.org.uk. The Country Land and Business Association website. Available at: https://www.cla.org.uk/news/family-farm-tax-could-leave-hard-pressed-farmers-paying-tax-bills-that-wipe-out-their-annual-profits/ (Accessed: 27 November 2024).

Department for Environment, Food & Rural Affairs (DEFRA) (2024) Farming evidence - key statistics (accessible version), GOV.UK. GOV.UK. Available at: https://www.gov.uk/government/publications/farming-evidence-pack-a-high-level-overview-of-the-uk-agricultural-industry/farming-evidence-key-statistics-accessible-version.

‌Geiger, C. (2024) ‘Most farmers won’t pay inheritance tax, Keir Starmer insists’, BBC News, 6 November. Available at: https://www.bbc.co.uk/news/articles/c4gv8zwge10o.

HM Treasury (2024) Summary of reforms to agricultural property relief and business property relief, GOV.UK. Available at: https://www.gov.uk/government/publications/agricultural-property-relief-and-business-property-relief-reforms/summary-of-reforms-to-agricultural-property-relief-and-business-property-relief.

‌HM Treasury (2024) What are the changes to agricultural property relief?, GOV.UK. Available at: https://www.gov.uk/government/news/what-are-the-changes-to-agricultural-property-relief.

Speed, M. (2024) Farmers with assets over £1mn hit by inheritance tax reforms, @FinancialTimes. Financial Times. Available at: https://www.ft.com/content/bbb5b348-120e-4e1a-b052-4e1da175ea20 (Accessed: 27 November 2024).