The October 2024 Budget delivered by Rachel Reeves has caused controversy across the political spectrum and in the media.
In November 2024, British farmers descended upon London in protest against Rachel Reeves' proposed Inheritance Tax Proposals on agricultural land.
The proposed rules aim to increase tax revenue by £520m a year [Sky News], roughly equal to 25 hours of NHS spending [based on £182bn spent on the NHS in 2023/24] or 3.4% of the foreign aid budget [£15.3bn].
Since the protests, there has been significant debate among policymakers and industry experts, with further comments from farming unions highlighting the long-term impact on food production and rural communities.
So what impact will this tax have on the UK and tax revenues generally? and how can British farmers plan ahead?
The Proposed Inheritance Tax Rules
Since 1984, farmers and agricultural landowners have been granted exemptions from inheritance tax (IHT) through specific tax reliefs.
These include Agricultural Property Relief (APR), which provides 100% relief on farmland and farm buildings, and Business Property Relief (BPR), which applies to equipment like tractors and combine harvesters, livestock, and income-diversifying assets such as converted cottages or farm shops.
Starting in 2026, these full exemptions will be replaced by an updated framework offering limited relief.
In simple terms, the proposed policy proposed by Reeves is this:
Tax-Free Threshold: The first £1 million of a farm remains exempt from inheritance tax, with potential for an additional £500,000 relief. If a farm is jointly owned by a married couple, IHT is due on the second death of the married couple with all reliefs added. That means up to £3 million of relief is potentially available.
Tax on the Residual: Any farmland value above £1 million is taxed at a flat rate of 20% - half the normal death rate for IHT.
Interest-Free Repayment: Tax can be repaid in equal instalments over a 10-year period, free of interest.
What will be the impact on farms?
The government and mainstream media have repeated the notion that just 25% of British farms will be affected by these changes, with various government departments publishing their own data to support this claim.
We believe that doesn't seem consistent with the turnout and level of discontent amongst the British farming community, so we decided to investigate this ourselves using data from farming publications directly.
How much are farms worth?
The average value of 1 acre of arable farmland in the UK is currently around £11,000. This average reflects ongoing strong demand, particularly for prime arable land, but this can vary regionally. Pasture land, by comparison, averages about £9,300 per acre in 2024 [Northern Farmer; Savills; Farming UK].
Therefore the average farm above 90 acres could potentially be above the £1m threshold, excluding additional reliefs.
How many farms could be affected?
The proportion of UK farms larger than 90 acres can be estimated based on available data.
About 20% of all UK farms are over 250 acres, while 50% are smaller than 50 acres. Farms in the 50–200-acre range account for a significant portion of the remainder, with the 90-acre threshold falling within this mid-sized category. Farms above 100 acres likely represent a majority of the mid-sized group.
Considering this distribution, it’s reasonable to estimate that around 30-40% of farms in the UK are larger than 90 acres. These farms account for a significant share of agricultural output, as larger farms typically occupy the majority of arable land [Savills; The Royal Countryside Fund; The Agricultural History Review]. Not a million miles away from Government estimates, which are likely to be underestimating the number of farms affected by these IHT changes.
Industry groups, including the Country Land and Business Association, have strongly opposed the proposed inheritance tax changes, describing them as a direct threat to the survival of family-run farms. With approximately 70,000 farms potentially impacted, many fear the reforms could force the sale of agricultural land simply to cover IHT liabilities. The ripple effects of this policy extend beyond inheritance, as the new rules also apply to lifetime gifts and trust transfers, increasing costs for intergenerational planning. These changes, coupled with added decennial trust charges, have led to widespread concern about their fairness and practicality, particularly given the unrealized wealth tied up in farmland values [FarmingUK; KPMG].
Can farms afford to pay their IHT?
It is well known that farms run on incredibly tight margins. They're often multi-generational family enterprises that have been part of the family for sometimes 10+ generations. The wealth of a farm is entirely unrealised.
Lets take a typical 150 acre farm valued at approximately £1.65 million. Under the proposed rules from 2026 with no additional reliefs, £130,000 in IHT would be due - or £13,000 per year for ten years.
Could a typical farm expect to be able to afford this? We need to examine the profitability of these farms.
Profits per acre on arable farms are reported to average around £66 to £100, depending on input costs (e.g., fertilisers, fuel) and crop prices. For a 150-acre farm, this translates to a net profit of approximately £9,900 to £15,000 annually under typical conditions.
For arable farms, gross margins can reach £280 per acre, but with high fixed costs, net margins remain narrow. Livestock or mixed farms have lower margins due to higher labor and operational costs [Savills; Farming UK].
As you can clearly see: this example of a 150 acre farm would lose at least 87% of its annual net profit for 10 years just to inheritance tax. That doesn't account for poor conditions and lower-yielding harvests.
Here's the situation that different farms could be in with no additional reliefs available, based on all of the estimates we've previously established.
Farm Size (Acres) | Total Land Value | Taxable Amount | Annual Repayment | Annual Profit Before Tax | Net Annual Profit |
100 Acres | £1,100,000 | £100,000 | £2,000 | £8,300 | £6,300 |
150 Acres | £1,650,000 | £650,000 | £13,000 | £12,450 | -£550 |
200 Acres | £2,200,000 | £1,200,000 | £24,000 | £16,600 | -£7,400 |
250 Acres | £2,750,000 | £1,750,000 | £35,000 | £20,750 | -£14,250 |
If we are to believe the government's assessment that just 25% of farms will be affected (which doesn't seem unreasonable based on the crude analysis in our table above) - then we can substitute the word "affected" to "completely destroyed".
Many Farmers will simply be forced to sell up - most likely to major international corporations.
Broader Impact on Food Production
Farms larger than 150 acres are the backbone of UK agriculture. They disproportionately contribute more the the country's food supply than the small farms unlikely to be affected by the changes.
Arable Crops: Farms above 150 acres produce an estimated 70-80% of cereals like wheat and barley, vital for bread, animal feed, and brewing. [Farmers Weekly; Energy & Climate Intelligence Unit].
Livestock: Large farms contribute around 60% of the UK’s beef and dairy output [Farmers Guide; Energy & Climate Intelligence Unit].
If these farms are forced to sell land or downsize due to IHT burdens, the UK's food production capacity will decline, harming the UK's food security.
This will make the UK more reliant on imports, which makes government even less likely to ease fiscal policy (lower taxes) since spending on imports does not stimulate the UK economy.
Reduced profitability will also deter investment in sustainable farming practices and regenerative agriculture.
All for achieving an increase in tax revenue equal to 3.4% of the foreign aid budget.
How to plan for Inheritance Tax as a farmer
Your individual circumstances are unique, and so if you have any concerns you should seek independent financial advice.
Inheritance tax planning often involves a range of actions including gifting, insuring against the liability, and the use of trusts - all of which require a detailed and personalised conversation regarding the advantages, disadvantages, and various risks.
Your local Independent Financial Adviser will be able to explain all of the planning opportunities you have available to you to ensure that you keep your farm in your family without being forced to sell up.
As a family-owned business ourselves, we understand why you want to keep your farm in the family.
At BlackBear Financial Group, we have a family history going back to 1978, with over 100 years of collective industry experience throughout the team.
BlackBear Financial Group Ltd is Authorised and Regulated by the Financial Conduct Authority. We're based in the North West of England serving Cheshire, Wirral, and Merseyside.
If you're concerned about how these proposed changes could impact your farm, now is the time to seek advice. Get in touch today.
Disclosure: The facts and figures quoted in this article are correct as of the time of writing. Please note that tax legislation and government policies are subject to change, and it is important to consult up-to-date sources or seek professional advice before making any decisions. For detailed guidance tailored to your circumstances, contact us for Independent Financial Advice.
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