Chancellor announces “hammer blow” reforms to agricultural property relief
30th October 2024
After much speculation and lobbying from the farming industry, chancellor Rachel Reeves has confirmed changes to inheritance tax reliefs.
Delivering the Labour Government’s first Autumn Budget today (30th October), the chancellor extended the inheritance tax threshold freeze for another two years, until 2030.
However, following much speculation, she confirmed reforms to agricultural property relief (APR) and business property relief (BPR) from April 2026.
From this date, the first £1m of combined business and agricultural assets will continue to attract no inheritance tax.
But, for assets over £1m, inheritance tax will apply with 50% relief.
The change comes despite significant lobbying from the farming industry and a statement from the now Defra secretary of state Steve Reed last year, that Labour had “no intention of changing APR”.
David Eudall, AHDB economics & analysis director, explained:
“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.”
“More significant than Brexit”
Andrew Entwistle, partner and head of valuations at GFW said the changes will have a bigger impact on British farming than Brexit, and “show a deeply limited understanding of the realities of family farming”.
“The suggestion that most family farms won’t be affected because they aren’t worth over £1 million is, frankly, unrealistic.
“Farmers are often asset-rich but cash-poor; with an average farm valued around £3 million, we’re now looking at inheritance tax bills of approximately £400,000.”
Nearly all family farm succession plans will now need to be re-evaluated to protect the longevity of the farm and maintain financial stability for future generations, he added.
“Business asset disposal relief will also see changes, which is likely to impact many farming and rural businesses.”
Meanwhile, Ben Sharples, partner, agriculture at law firm Michelmores described the announcement as a “hammer blow to the ambition of maintaining viable farms”.
He added: “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.”
However, the chancellor also confirmed that she will extend the existing scope of APR to include land subject to environmental schemes from 6th April 2025.
This change was proposed by the previous government.
Mr Sharples added: “The extent of the relief is broad, encompassing the mainstream agricultural support (ELMS) but also land managed under an environmental agreement with or on behalf of the UK government, devolved administrations, public bodies, local authorities or approved responsible bodies.
“The new rules will apply with APR of 100% for the first £1 million and 50% thereafter.”
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Nothing short of a betrayal
Country Land and Business Association (CLA) president Victoria Vyvyan described the news on inheritance tax as “nothing short of a betrayal”.
“Labour has made repeated assurances over the last 12 months that it would not tamper with inheritance tax reliefs […],” she said.
“This puts dynamite beneath the livelihoods of British farming, and flies in the face of growth and investment.”
CLA estimates that capping APR 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,” she concluded.
A recent poll by the Country Land and Business Association found over 90% of farmers who responded said scrapping reliefs would damage the UK’s food security.
Meanwhile 86% said it was ‘likely’ that some or all of their land would have to be sold upon their death, if inheritance tax reliefs are scrapped.
READ MORE: NFU calls prime minister to stand by his commitments ahead of Budget
Calls for IHT to be maintained
Rumours have been swirling in recent weeks that APR and BPR could come under fire in the Budget – prompting industry groups to clamour for stability.
Farming groups have previously warned that scrapping inheritance tax relief would tear family farms apart.
APR in particular is an essential relief for farmers who rent land as part of their business model. 64% of farmland is occupied by farmers who rent some or all of their land.
The four farming unions, NFU, NFU Scotland, NFU Cymru and Ulster Farmers’ Union recently penned a letter to the chancellor urging her to consider the sizeable impact of changing APR and BPR.
NFU president Tom Bradshaw said at the time that changing APR and BPR would be a “devastating blow” to British farming as we know it, adding that the effects would be felt for generations to come.
“It’s hard to see anything which would destroy the new government’s relationship with farmers more completely, or do more damage to family farm businesses, be they the owners of farms or the tenants who farm them for the landlord.”
READ MORE: Scrapping inheritance tax reliefs would mean death to many farms, farmers warn
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Responding to the Budget, NFU Cymru president Aled Jones said the majority of Welsh family farms would be brought into the scope of the tax.
“Just because a family farm may look like a valuable asset on paper, that doesn’t mean those who work it are wealthy and able to meet a large tax bill.
“Whilst there is typically a lot of capital involved in farm businesses, the return on the capital employed in farming, after taking into account a wage for the farmer, averages less than 1%.
“Such a rate of return is completely insufficient to pay an inheritance tax charge of 20% upon the generational transfer of that farm.
“Unless we see an urgent reconsideration by the UK Government, I am afraid we are going to see the breakup of multi-generational family farms.”
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