In a significant development concerning agricultural taxation, the UK Treasury has rejected a proposal from the Department for Environment, Food and Rural Affairs (Defra) aimed at softening impending changes to inheritance tax specifically affecting farms. The proposal included potential exemptions for older farmers, designed to alleviate the impact of changes that will effectively end the existing inheritance tax exemption for many farming operations. This announcement has stirred considerable unrest within the farming community, which is concerned about the financial implications of the change.
The Treasury maintains that there will be no modifications to the policy. Effective from April 2026, farms valued at over £1 million will be subjected to an effective inheritance tax rate of 20%, which is half of the standard rate of 40%. This new regulation, which has been interpreted as detrimental by various farming organizations, has led to claims from the National Farmers’ Union (NFU) that it could result in severe economic consequences for rural communities.
Reports suggest that Defra was alerted to the change just hours prior to its announcement in the recent budget, raising questions about the adequacy of consultation with the department that represents farmers. Farmers are increasingly vocal about their opposition to the new policy, predicting it could lead to a decimation of the countryside due to financial strain and the pressure it may place on them to liquidate assets to meet tax obligations.
The NFU has labeled the changes as “disastrous,” asserting that the alterations threaten the viability of family farming. Suggestions from Defra, including the exemption of individuals over the age of 80, were dismissed by the Treasury, which asserts that it has taken a “fair and balanced approach.” This statement comes in the context of fiscal challenges faced by the government, including a reported £22 billion deficit from prior administrations and a need to ensure the sustainability of relief measures.
Historical context reveals that the Agricultural Property Relief (APR), established in 1984, previously allowed small family farms the opportunity to pass properties like land and farm buildings without incurring inheritance tax. The Treasury has cited that a considerable portion of the relief has been disproportionately used by the wealthiest claimants, with 40% of it going to the top 7%. Hence, they argue, changing the rules is necessary for fiscal health and to alleviate pressure on public services.
Despite the Treasury’s rationalization of the policy, there remains a significant divide within the government, with some officials concerned that Chancellor’s actions could alienate traditional rural voters and farmers. The amount anticipated to be raised from the new taxation is estimated at around £560 million. Critics highlight that the financial gain from such a measure could hinder public relations with the agricultural community without providing substantial revenue.
As the government navigates these contentious waters, a protest against the tax reforms is scheduled for Whitehall. Farmers have expressed frustration over the apparent lack of engagement from the government regarding the implications of the proposed tax changes. Discrepancies in impact figures further fuel the controversy, with Defra indicating that the changes will affect 66% of estates, while the Treasury claims that proportion is much lower, at 28%.
Industry leaders like Tom Bradshaw, NFU president, have called for a reconsideration of the rules, arguing that the economic conditions of farming are distinct from other sectors. They stress the unique financial pressures placed on farmers, many of whom continue to work past retirement age. The complexity of the situation is compounded by the potential long-term effects of these tax changes on future generations of farmers, who may find themselves unable to continue their family legacies due to increased financial burdens.
