The reformed tax will affect most family farms and is unaffordable
What is changing?
Since 1992, the owners of agricultural businesses have benefited from 100% relief from IHT on the agricultural value of their assets and their businesses’ trading property. From 6 April 2026, this will change. Despite the current Defra Secretary of State, Steve Reed, telling the CLA conference in November 2023 that “Labour has no intention of changing agricultural property relief (APR)”, the Chancellor announced significant reforms in her Autumn Budget.
Under the new rules, the full 100% relief from IHT will be restricted to the first £1 million of combined agricultural and business property. After that, a 50% relief from IHT will apply to a deceased individual’s estate, meaning an effective IHT rate of 20%. Trusts are also impacted; there will be a combined £1 million allowance for trustees on the value of qualifying property – to which 100% relief applies on each 10-year anniversary charge and exit charge. If a settlor established multiple trusts after 30 October 2024, the £1 million allowance will be shared between them. A technical consultation in early 2025 will focus on the detailed application of the allowance to lifetime transfers into trusts and charges on trust property.
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Does the reform achieve its objectives?
Firstly, what were they? The sentiment of the budget document is perhaps best summarised by the lead paragraph of a government news article released the following week: “Reforms announced at the Budget will help raise money to fix the public finances while protecting small family farms from unfairly high inheritance tax”. At the same time, the farming minister, Daniel Zeichner, appeared at the Northern Farming Conference and said the reforms were because the government was trying to stop “people coming in from outside [the industry] with large amounts of money, buying up land, not for farming, but frankly, to use the current tax system for their advantage”, and that he hoped the IHT changes would force farming families to allow the younger generations to take over and improve productivity. The latter is likely justification after the fact, as Defra reportedly wasn’t consulted on the IHT changes until 24 hours before the budget. This is a view that NFU president, Tom Bradshaw, backed up following his meeting with the environment secretary, Steve Reed.
Raising revenue
According to the Office for Budget Responsibility, IHT is forecast to raise £7.5 billion in 2024/25, representing 0.7% of all tax receipts. The Treasury is projecting to raise an additional £520 million a year by 2028/29 due to the APR and Business Property Relief (BPR) reforms. This is a considerable sum, but not in the context of the national tax receipts, of which it will be around 0.05%. Considering the reforms apply to all farming and non-farming family businesses, the Treasury’s projection suggests it expects many individuals to restructure their estates to mitigate the impact. So, it is imposing the tax planning cost on business owners for a relatively modest tax take.
Protecting small family farms
Suppose an individual owns a farm and uses their available personal reliefs. In that case, our modelling using average values for agricultural property and business assets suggests those over 124 acres (50 hectares) in size would have an IHT liability. Out of the UK’s 217,000 holdings, a third are over 124 acres in size (72,000), and they farm 88% of the country’s agricultural land area (figure 5). Therefore, the IHT reforms will impact the families and businesses farming most of the country’s farmland. On the other hand, many who own smaller areas of land that would not be a viable family farm benefit from full IHT relief.
Detering the use of farmland as a tax shelter
The government is not making any eligibility changes to explicitly focus the relief more tightly. Its amendments just limit the scope of the 100% relief to the first £1 million of eligible assets – and following the reform, agricultural land retains preferential inheritance tax treatment over cash, let property and financial investments. It is possible that by limiting the scope, some very high net-worth individuals may focus on other asset classes. On the other hand, prominent media coverage means the wider population’s awareness of the inheritance tax treatment of farmland and business assets is now much higher, which could attract smaller investors.
Encouraging earlier succession to boost productivity
A CLA and Farmers Guardian survey of 500 farmers in 2022 found that 90% had identified who would take over their business, and 59% expected to hand it to their children. The reforms mean that families discussing succession and developing a plan is no longer best practice – it is now essential. Lifetime gifting is likely to be a prominent tool used by impacted farmers, though the issue of “reservation of benefit” needs careful consideration. Different circumstances and family objectives mean professional advice is essential, as there is no one-size-fits-all solution.
The policy is likely to encourage earlier succession, but whether it boosts productivity remains to be seen – as many successors will already have management responsibility today, despite not being the ultimate owner of the farm.

What is the reform’s impact on different farm types and sizes?
Our modelling shows arable farms with a single owner would become subject to IHT at around 150 acres, while the tax affects upland livestock farms of roughly 300 acres and above. These would both be considered small family farms.
Farmers are often called “asset rich but cash poor” because the return on capital employed (ROCE) in agriculture is lower than in many other industries. According to Defra’s Farm Business Survey, the median ROCE for farms in England was 0.5% in 2022/23. It has been negative in seven out of the last 10 years, and its 10-year average is -0.09%, meaning the median farm is effectively operating at break-even. On average, the ROCE of cereals and dairy farms is higher than that of livestock and mixed farms (figure 6).
The strong family farming culture and low ROCE explain why farmers’ protests against the IHT reforms have been stronger than in the wider business community. To investigate the affordability of this tax, we used the sector’s average ROCE figures to calculate the annual profit. We assumed a generation might typically hold the farm for 25 years before the next generation inherits it. For an arable farm of 400 acres, the tax liability exceeds £560,000 and 50% of the generation’s business profit would be required to pay it. As farm size increases, a larger proportion is needed (figure 7). The charge is of a magnitude likely to deter business investment and growth – and its fairness is questionable. To help farmers, the government confirmed they can pay this tax in interest-free instalments over 10 years. In this scenario, the annual payment would equal 126% of the yearly profit.
Following the reform, agricultural land retains preferential inheritance tax treatment over cash, let property and financial investments
Andrew Teanby, Associate Director, Rural Research
The liability for a 400-acre upland livestock farm is more than £140,000 (figure 8). However, the median ROCE has been negative in nine of the last 10 years for upland livestock farms and averages -1.09%. As a result, there is no profit to pay the IHT, so the sale of some farmland may be required. In both cases, the models illustrate the policy requires an in-depth government impact assessment. If implemented as described in the Budget, most family farms will require detailed tax planning.
Read the articles within Spotlight: The Farmland Market below.