Why is the budget such bad news for the UK’s farmers?

Alongside claims by Jeremy Clarkson that Reeves’ changes to Inheritance Tax rules had “shafted farmers”, entrepreneur, inventor and farm owner James Dyson described the Chancellor’s plans as an “ignorant swipe at aspiration”. Even Elon Musk piled in, warning the tax change would “kill off UK family farming”.

As part of the Chancellor’s proposals to raise £40bn via taxation, the government is changing the rules on IHT eligibility for farm businesses via amendments to agricultural property relief (APR) – which reduces the tax payable to HMRC when farmland is passed to the next generation after a death. Business property relief (BPR) – which caps the tax payable on farmland and business assets – will similarly be changed.

Under the changes, 100% APR and BPR will, from April 2026, be capped at £1m, with the relief above this level reduced to 50%. This means businesses will pay an effective IHT rate of 20% on assets above the £1m mark, having previously paid zero.

Farmers from across the UK are planning protests against the plans – with the prospect of tractors descending on Westminster later this month, amid warnings of strike action to withhold produce from the market.

NFU president Tom Bradshaw describes the changes as an “awful family farm tax” – a descriptor that already looks like it’s catching on. They also demonstrate “a fundamental lack of understanding of how the British farming sector is shaped and managed”, he claims, and will ultimately drive up food prices and impact on food security.

Very few viable farms would be worth under £1m, he points out, “but lots of smallholdings and houses with a few acres let for grazing might be”, with many struggling farm businesses already at “breaking point” and unable to absorb any more cost burdens.

Read more: Anti-budget strike action by farmers ‘could lead to food shortages’

“It’s clear the government does not understand that family farms are not only small farms. Just because a farm is an asset it doesn’t mean those who work it are wealthy,” he says.

And every penny saved by the policy will “come directly from the next generation having to break up their family farm,” warns Bradshaw. “It simply mustn’t happen.”

His comments are echoed by predecessor and now cross-bench peer Minette Batters, who describes the budget as “thin gruel” for farmers and tells The Grocer the proposal, coupled with the lack of a meaningful food strategy “hardly delivers on Labour’s pledge that ‘food security is national security’”.

Debatable impact

A definitive picture on exactly what kind of impact the policy could have on family farms, however, is subject to significant debate (and confusion).

The NFU believes two thirds of all working farms could be impacted, but it also points to contradictory reasoning by government. The Treasury claims 73% of APR claims are below £1m, so would be unaffected by the policy. Defra’s figures, however, show that only 34% of farms are under £1m net worth.

Grower body British Apples & Pears suggests the new IHT rules will create a tax bill of at least £750,000 for a 250-acre fruit farm with buildings and some property.

“At the very least, that will increase the price of food,” says BAP executive chair Ali Capper. “At worst, families will be forced to sell their farms to pay the tax bill.”

Meanwhile, the Country Land and Business Association says the changes could “harm 70,000 UK farms, damaging family businesses and destabilising food security”, making the successful passing of family farm businesses down through the generations much more challenging.

Defra secretary Steve Reed has been quick to respond to criticism, stressing “only the richest estates will be asked to pay – not small, family farms”, adding media coverage to the contrary was “misleading”.

The department published a further clarification in the wake of a meeting with Treasury officials and Bradshaw on Monday, stressing individuals can pass up to £325,000 Inheritance Tax free, £500,000 if it includes a residence to a direct descendant, and £1m when a tax-free allowance is passed to a surviving spouse or civil partner.

There is also a full exemption of Inheritance Tax if passing assets to a spouse or civil partner, Defra says, with individuals able to pass up to £2m, while a couple can pass up to £3m between them to a direct descendant inheritance tax free.

Read more: ‘Shafted’ farmers dismayed by budget tax hikes warn of price increases

It also says just 500 estates that claimed APR each year are expected to be affected, while farmers can also avoid IHT if they pass on their farm more than seven years before their death.

Adding to the confusion, the likes of tax guru Dan Neidle, founder of thinktank Tax Policy Associates, has also chimed in, pointing out the £1m figure is “misleading”, adding some 87% of inherited agricultural property used less than £1m of APR “and so will remain completely exempt”.

Keir Starmer, Reeves and Defra’s Reed have this week stood firm on the plans, with Starmer responding to a call to u-turn by new Tory leader Kemi Badenoch by insisting on Wednesday that the vast majority of farmers “will be unaffected” by the changes.

In the wake of his meeting with government officials on Monday, Bradshaw said it was “good to hear the Treasury would look at the discrepancy”, between its and Defra’s figures.

But he also warns the sector is enraged over the proposals, having heard “really upsetting accounts of what this tax would do to family farms”.

All eyes will now be on what the Treasury does next. But with threats of direct action growing at a rapid rate, this policy already looks like it has alienated the farming sector beyond repair.