Government holds fast on farm tax

Will Drysdale, Senior Reporter, Business & Accountancy Daily @ Croner-i

To all farmers dismay the changes to agricultural property relief (APR) look to be going ahead as draft legislation published yesterday on the relief confirms the reform will be applied on 6 April 2026.

As we’ve known for some time Labour has been intending on changing the reliefs on agricultural properties so that they come under the scope of IHT from 6 April 2026. However, it won’t be at the full 40% rate others paying IHT have to cough up as it is being halved for inherited farming estates.

Additionally, a new £1m allowance will be applied to the value of the qualifying estate, this combined with the nil-rate band means a couple can pass down a £3m estate tax free. If an estate does end up subject to IHT then the family will have 10 years to pay the amount interest free.

Despite this, experts and farmers believe this will have a negative impact on the farming industry in the UK and thousands have rallied to protest it across the country.

Aloysia Daros, head of landed estates and rural businesses at S&W said: ‘The reduction in inheritance tax relief for agricultural land and assets could have a devastating impact on thousands of family farms.

‘Now the waiting and uncertainty is over, farm owners need to address this urgently. But they must also ensure the strategies put in place will prove effective in limiting the impact of the inheritance tax changes. Control of the assets and income must be central to those discussions.’

The 100% relief on agricultural property has been in place since 1992 and now farmers will have to seek advice on how they intend to pass down not just their business but their homes.

It’s also predicted to pull in just £230m in the first year, then reaching a maximum of £520m by the end of the decade and ‘is not expected to have any significant macroeconomic impacts’ said the government.

Although, the government has shared it expects the measure to pull 2,000 estates across agricultural and business properties into the scope of IHT in 2026-27 with 520 of these being agricultural.

However, data shows that 73% of estates claiming APR in 2021-22 were valued below £1m with the median value being £486,000 implying that agricultural properties are still valued around the same amount as they were four years ago.

Daros said: ‘They face paying 20% on the value of the land, regardless of the profits it’s making or otherwise. With many farms facing a tough time from rising costs and tight margins, it puts their viability in doubt.

‘The reform drove a horse and cart through farm owners’ capital tax planning.’