A typical family farm would have to put 159% of annual profits into paying the new inheritance tax every year for a decade and could have to sell 20% of their land, according to new analysis.
Chancellor Rachel Reeves announced in her 30 October budget farms would no longer get 100% relief on inheritance tax, and from April 2026 will have to pay 20% tax on farms worth over £1 million.
The announcement has sparked anger among farmers who argue this will mean higher food prices, lower food production and having to sell off land to pay for the tax.
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Ministers said the move will not affect small farms and is aimed at targeting wealthy landowners who buy up farmland to avoid paying inheritance tax.
However, analysis by the Country and Land Business Association (CLA), which represents owners of rural land, property and businesses in England and Wales, found a typical 200-acre farm owned by one person with an expected profit of £27,300 would face a £435,000 inheritance tax bill.
The plan says families can spread the inheritance tax payments over 10 years, but the CLA found this would require an average farm to allocate 159% of its profits each year for a decade.
To pay that, successors could be forced to sell 20% of their land, the analysis found.
Farmers protested against the plan outside a farming conference in Northumberland. Pic: PA
The CLA said their model shows how family farms, which are mostly asset-rich but cash-poor, would be forced into a cycle of stagnation, asset sales or debt to cover the tax.
This would threaten the long-term viability of the UK’s rural landscape and food security, the association said.
The government has said other tax relief will still apply to farmers, so if a married couple owns the farm they can pass on the land and property valued up to £3m to a child or grandchild tax-free.
This is made up of the £1m each of agricultural property allowance plus £500,000 each in standard tax-free allowance for passing on an estate worth less than £2m to children or grandchildren.
The CLA’s analysis found a 250-acre arable farm owned by a couple with an expected annual profit of £34,130 would still face an inheritance tax bill of £267,000 – 78% of its profit each year over a decade.
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Gavin Lane, deputy president of the CLA, said: “Either the government isn’t being honest with the public about the true impact of these reforms, or they don’t understand the nature of rural businesses.
“I’d like to believe it is the latter and that they are prepared to listen to our input rather than continually trying to dismiss it.
“While they frame this as a tax on the wealthy, the reality is that ordinary family farms will be hit just as hard.
“Asking farms to use their income to pay a huge capital tax bill over 10 years, if indeed it is possible, will threaten the future of investment and the viability of the business.”
File pic: iStock
The Treasury said the change will make inheritance tax relief “fairer, protecting small family farms”.
An explanation of the plan on the government’s website said the top 7% (the largest 117 claims) of agricultural property relief claims account for 40% of the total relief, costing the taxpayer £219m.
The top 2% of claims (37 claims) account for 22% of agricultural property relief, costing £119m, it says.
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“It is not fair for a very small number of claimants each year to claim such a significant amount of relief, when this money could better be used to fund our public services,” the website adds.
It also says the chancellor announced £5bn to help farmers produce food over the next two years, alongside £60m for the Farming Recovery Fund to help farmers recover from the impact of flooding.
Sky News has contacted the Treasury for a comment on the latest analysis.