Inheritance Tax Shakeup Looms For UK Farmers Amid Budget Fears

Ministers are weighing up significant changes to inheritance tax relief for farmers as next month’s budget approaches, following sustained criticism of chancellor Rachel Reeves’ controversial proposals unveiled last year. Farmers and rural leaders have raised urgent concerns that the new policy, which would impose a 20 per cent inheritance tax on agricultural estates valued over £1 million, threatens the future of family farms and the wider rural economy.

Under previous rules, agricultural property relief meant most farmland passed between generations was exempt from inheritance tax. Reeves’ new approach would see qualifying assets above the threshold paying a reduced rate—half the standard 40 per cent rate—but the National Farmers’ Union and the Country Land and Business Association argue this still risks forcing families to sell land or machinery to cover tax bills. They warn that such pressures could undermine food security and the long-term viability of small rural businesses.

HM Revenue & Customs estimates some 2,000 estates would be affected, with ministers asserting that three quarters of estates would remain untouched by inheritance tax under the revised regime. For those required to pay, new rules allow payments to be spread over a decade without interest, softening the immediate financial impact. However, insiders at the Department for Environment, Food and Rural Affairs are understood to be exploring ways to further shield small farmers from damaging consequences. Proposals under discussion include raising the IHT threshold from £1m to £5m, an approach that would protect most genuine family farms while ensuring higher value estates continue to contribute.

Industry sources suggest that estates above the new higher limit could lose the 50 per cent reduced rate, facing the full 40 per cent inheritance tax on assets above £5 million. Supporters claim this shift would target wealthier landowners and investors, discouraging the use of agricultural land as a vehicle for tax mitigation.

Policy ideas being considered mirror suggestions from think tanks such as the Centre for the Analysis of Taxation, which recommends exempting estates below £5 million that derive the majority of their value from agricultural activity. Between £5 million and £10 million, only partial relief would apply, with the largest estates subject to the standard rate. Analysis indicates such moves could double Treasury receipts, whilst shielding typical family-run farms from excessive tax burdens.

Department officials are understood to be preparing submissions to the Treasury, with industry stakeholders and major food retailers urging the government to reconsider the changes in light of concerns over food production, rural livelihoods and the security of British farming for future generations.