The government’s proposed changes to Inheritance Tax could affect more than three quarters of England and Scotland’s typical farms, new independent research by AHDB has found.
Analysis of average balance sheet data by AHDB revealed that 42,204 of 54,938 farms (76.8%) of 50 hectares (124 acres) or more in size across the two nations will be affected by the new, so-called ‘Family Farm Tax’ rules.
The levy board’s analysis, mainly sourced from data from Defra, the Farm Business Survey and the Scottish government, represents a marked departure from the government’s own line on the controversial policy, that only the wealthiest landowners will be affected.
More than half of affected farms were involved in cereals or general cropping production as their main enterprise, with the rest predominantly livestock producers or mixed farming operations, AHDB said.
The government’s IHT proposals, first laid out by Chancellor Rachel Reeves in her budget on 30 October, will see the full 100% relief from Inheritance Tax restricted to the first £1m of combined agricultural and business property, from April 2026.
The proposals have led to a series of protests, which culminated in a nationwide ‘Day of Unity’ staged by the NFU on 25 January, with farmers claiming the changes – which will see agricultural and business property relief reduced to 50% after £1m – could send many farming businesses to the wall.
It comes as a series of major supermarkets last week called for a “pause” in the government’s proposals pending a full consultation.
The findings of AHDB – a non-departmental public body sponsored by Defra – are at odds with the Treasury’s own calculations. It has insisted its plans will not affect around three quarters of farming businesses – with the government yet to budge on calls to u-turn on the proposals. The government has stressed other available mitigations would take the potential for tax relief up to £3m.
Read more: Major supermarkets call on government to hit ‘pause’ on ‘Family Farm Tax’
“Our calculations show that cereals and general cropping farms are the most likely to be affected due to their scale and asset size,” said AHDB analyst Tom Spencer. “For livestock farms, it is those businesses with single person ownership that are most at risk.”
Given the current low rate of return on net current assets in farming, AHDB said the most cost-effective way a cereals producer could pay their expected tax burden “would be to sell parcels of land”.
“The debate on whether the change to Inheritance Tax is the right decision is not for AHDB to comment on,” said AHDB economics and analysis director David Eudall.
“Our priority is to help explain how this will impact many levy payers and support them on navigating a path through these challenges,” he added.
“The first stage has been to identify the farms at risk, so they can review their own circumstances and implement appropriate actions. There are 300 working days until 1 April 2026, when the tax changes come into effect,” Eudall said.
“This means 140 farming businesses across England and Scotland per working day, from today (28 January 2025) onwards, will need to ensure their business is set up to manage their tax implications.”
It was “critical” any affected farming enterprises sought out expert tax and business planning advice, he urged. “Succession planning was already important in agricultural farming businesses, now it is essential.”
It comes as the Office for Budget Responsibility last week said the Inheritance Tax proposals would likely leave elderly farmers exposed, with no time to manage their way through the new policy.
An OBR report said that it was “highly uncertain” whether the measures would raise the £500m the Treasury – which did not consult on its plans before launching the changes – claimed it would raise. The report added: “It is likely to be more difficult for some older individuals to quickly restructure their affairs in response to the measure.”
AHDB findings match NFU’s calculations
Responding to AHDB’s findings, NFU president Tom Bradshaw said the fact “the government’s own levy board has now come to the same conclusion as the NFU, that 75% of commercial farm businesses could be affected by this policy – more than 42,000 farms – speaks volumes”.
It could not be clearer that the data “behind this abhorrent family farm tax is wrong and that the Treasury has drastically underestimated the scale of the impact on British farming and food”, he added.
“Last week it was the Office for Budget Responsibility, the very organisation the Treasury has been falling back on to evidence its policy, highlighting the issues it could cause for elderly farmers, while the cross-party Efra Committee wrote to the Prime Minister questioning the accuracy of the data behind the policy.”
The public, and all major UK supermarkets “continues to back British farming with more than 270,000 people adding their signatures to our petition which last week we delivered to Number 10. The pressure continues to mount”, Bradshaw pointed out.
“As the representative voice of more than 44,000 farm businesses, all we want to do is sit down with the Chancellor and discuss a way forward but, so far, she has ignored our requests. Will she also choose to ignore the independent farming experts on its own levy board?”
A Treasury spokesman said it “did not recognise” AHDB’s analysis, adding the government was “fully committed to this policy”.
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