Landowners say they face huge tax on profits due to farm inheritance changes

Small family farms could be hit with inheritance tax bills amounting to up to 159% of their profits due to changes announced in the , according to analysis by a landowners’ group.

The Country Land and Business Association (CLA) has challenged ministers' assurances that most farms will not be affected by the inheritance tax revisions presented by . Currently, inheritance tax relief allows farmers to hand over their land and property without tax implications to their families, either during their lifetime or through their will.

However, the Chancellor's recent Budget declaration caps the 100% relief for family farms at the first £1m of combined agricultural and business property, with any excess subject to a 20% tax rate instead of the usual 40% inheritance tax (IHT) on other lands and properties. This policy shift has sparked anger among farming communities and unions, who argue it could severely damage the future of farm businesses, potentially forcing sales of land and diminishing business viability.

Despite government claims that only the largest landowners, about a quarter of farmers, will be impacted, the CLA's analysis indicates that a "typical" arable farm of 200 acres (80 hectares) with profits of £27,300 would face an IHT bill of £435,000. To manage this over a decade, the farm would need to dedicate 159% of its annual profit to the tax, possibly leading inheritors to sell off around 20% of their farmland, the CLA warns.

Defra's own data indicates that the average English farm spans 88 hectares, but this varies across different regions of the country. This suggests that the CLA's analysis may be more relevant to areas like the North East, where farms are typically larger.

The CLA's calculations echo warnings from the National Farmers Union, which has estimated that 75% of UK food production could be affected by Ms Reeves' changes. The union explained that this is due to the £1m threshold for IHT relief for farms being combined with business property relief once the changes are implemented.

Currently, farmers can claim these two types of tax relief separately. Gavin Lane, the CLA’s deputy president, said the Government either “isn’t being honest with the public about the true impact of these reforms, or they don’t understand the nature of rural businesses”.

He added: “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.”

Asked about the impact of the reforms, a No 10 spokeswoman said: “It remains the case that the vast majority of farmers won’t be impacted by the change, and it remains the case that currently, 40% of agricultural property relief has been going to the 7% of the wealthiest claimants, which isn’t sustainable.”

Government estimates suggest some 500 claims each year will be impacted by the IHT relief reform. The NFU is planning a “mass lobby” event in central London on November 19 to press MPs about the changes.

Downing Street acknowledged there was “a high degree of strength of feeling” about the matter, and urged farmers to consider Treasury analysis which said the vast majority of their number will not be impacted.