Bid to soften change rejected by Treasury
Proposals from the Department of Rural Affairs to soften farm inheritance tax reforms – possibly by exempting some older farmers – have been rejected by the Treasury.
The Treasury said there would be no changes or relief to the policy, which would result in the end of inheritance tax exemptions for certain farms.
From April 2026, farms worth more than £1 million will face an effective inheritance tax of 20% – half the usual rate of 40%.
BBC Newsnight understands the Department for Environment, Food and Rural Affairs (Defra), which represents farmers’ interests in government, believes the change was not properly consulted on.
The department was informed of the policy the night before it was announced in the budget.
This move has Called “disastrous” by the National Farmers’ Union (NFU)some farmers warn it will devastate the countryside.
Defra recommended relaxing the policy to exempt some older people, possibly those aged over 80.
The policy will come into effect in April 2026, meaning they may not have time to take advantage of existing rules to skip estate tax by transferring assets seven years before death.
But the suggestion has been rejected by the Treasury, which said it took a “fair and balanced approach”.
Since its introduction in 1984, Agricultural Property Relief (APR) has allowed small family farms (including land used for crops or animals, as well as farm buildings, cottages and houses) to be exempt from inheritance tax.
The Treasury said the 40% annual interest rate had gone to the “richest 7% of claimants” and that it had “made a difficult decision to ensure relief is fiscally sustainable”.
It puts the situation against the backdrop of “the collapse of public services (and) the £22bn fiscal hole left behind by the previous government”.
“Approximately 500 claims per year will be affected Couples who own a farm can inherit up to £3 million without paying any inheritance tax – this is a fair and balanced approach,” a spokesman added.
There are divisions within the government over the change.
Some ministers believe it will only affect relatively wealthy farmers – with a couple using all their inheritance tax benefits being able to transfer £3m of farm tax tax-free. Any inheritance tax on the farm is payable within 10 years.
But other ministers believe the chancellor is in danger of damaging Labour’s relationship with rural Britain while improving its relationship with rural Britain. A relatively small amount of money.
The change could raise around £560m.
Some sources in the government have expressed concern that the chancellor is creating unnecessary grief over what is a relatively modest money-making change.
There are fears the change – which has caused controversy among farmers since it was announced – could become a “totem” for rural Britain.
The NFU warned this would “deprive the next generation of the ability to continue producing British food” and result in farmers being forced to sell their land to pay tax.
A rally to protest the plans will be held in Whitehall next Tuesday.
There is also controversy over the numbers used to calculate the changes.
Defra told farmer leaders the figures came from the Treasury, not their department.
NFU chairman Tom Bradshaw said Defra figures showed the changes would have an impact on 66 per cent of estates.
The Treasury Department put the figure at 28%.
Agriculture Forum founder Clive Bailey said on Thursday any changes to the new rules “would be a step forward”. The Agricultural Forum is also organizing a protest in central London next week.
Bailey, who farms in Staffordshire, said the proposed exemption should cover people well under the age of 80.
He told BBC Radio 4’s Today program that farming “keeps a lot of people working who should be retired” compared to the wider population.
He called the succession rules “ill-conceived.”
He said the cost of running a viable farm was more than £1 million and believed the government needed to “sit down with real family farmers or agricultural economists”.
“We’re not special, but the economic climate in agriculture is very different from other industries.”
A Defra spokesman said: “Due to the collapse of public services and the £22bn fiscal gap left by the previous government, we have taken the difficult decision to reform agricultural property relief in a balanced and fair way.
“All ministers support this policy and that will not change.”
