Budget 2024: Inheritance tax, family farms and food security

Approximate read time: 15 minutes

On 12 December 2024 the House of Lords will debate the following motion:

The Earl of Leicester (Conservative) to move that this House takes note of the impact of recent government proposals on the future of family farms and food security.

1. How much food is the domestic farming sector supplying for the UK?

Around 60% of the food consumed in the UK is domestically produced.^[1] The UK produces most of the cereals, meat, dairy, and eggs that it consumes. The percentages are lower for fruit (17%) and vegetables (55%) due to climate, seasonality, and consumer choice.^[2]

The Department for Environment, Food and Rural Affairs (Defra) has assessed the UK’s food supply as “broadly stable”.^[3] However, domestic food production is vulnerable to a range of factors, including:

• changes in climate and extreme weather events; for example flooding has impacted crops this year
• prices offered by purchasers
• high energy costs
• international supply chains; for example fertiliser became more expensive following Russia’s invasion of Ukraine
• labour shortages
• biodiversity, soil and water quality
• biosecurity and animal health^[4]

Farming groups, including the National Farmers’ Union (NFU), have argued the government’s proposed changes to inheritance tax also pose a risk to food security.^[5] The NFU has expressed concerns that if productive farms have to be broken up or sold to pay inheritance tax supply chains would be disrupted.

2. What changes is the government making to inheritance tax for farming families?

In the autumn budget 2024 the government announced reforms to agricultural property relief (APR) and business property relief (BPR) from inheritance tax.^[6] The government will publish a technical consultation by early 2025 with reforms planned for April 2026.

At the moment APR and BPR are available at a rate of 100% or 50% (based on eligibility criteria) with no cap on the total amount of relief.^[7]

From April 2026, inheritance tax relief for business and for agricultural assets would be capped at £1mn, with a new reduced rate of 20% being charged above that (rather than the standard inheritance tax rate of 40%). The tax would be payable in instalments over 10 years interest free.

The Treasury has set out that full exemptions for transfers between spouses and civil partners would continue to apply.^[8] There are also nil rate bands for inheritance tax which people would retain access to on top of the £1mn. A nil rate band is an amount of an estate that can be passed on free of inheritance tax. The tax-free allowance for residences is £175,000 per person. Each person also has a £325,000 tax-free allowance that can be applied to all types of assets.

The government has confirmed that the valuation of an estate would include non-residential agricultural buildings, farm vehicles, farm tools, livestock, chemicals and fertiliser stock.^[9]

Table 1 includes illustrative examples from Treasury figures of different values which could be inherited before paying inheritance tax. Figures indicate that in some circumstances, two people with farmland could pass on up to £3mn without paying inheritance tax. Farming assets and businesses can be arranged in numerous ways; the examples below do not cover every circumstance.

Table 1. How will new inheritance rules apply to farms?

(HM Treasury, ‘What are the changes to agricultural property relief?’, 5 November 2024)

Any transfers to individuals more than seven years before death would continue to fall outside the scope of inheritance tax, and the rate tapers down from three years after the transfer.

Treasury data demonstrates that for 2021/22, 73% of APR claims came from estates with qualifying assets worth less than £1mn.^[10] For BPR, 88% of claims came from estates with qualifying assets worth less than £1mn.

3. Why is the government making changes to inheritance tax for farmers?

In answer to an urgent question on the budget’s implications for farming communities, Daniel Zeichner, minister for food security and rural affairs, said that “sadly, [APR] has been used in some cases by wealthy landowners to avoid inheritance tax. That is why the government have announced plans to reform agricultural property relief”.^[11]

Mr Zeichner said rural communities would benefit from “a better NHS, affordable housing and public transport, and we can provide that if we make the system fairer”.^[12]

During the budget speech on 30 October 2024 Chancellor Rachel Reeves said the measures would “ensure that we continue to protect small family farms”.^[13] Ms Reeves said three quarters of claims would be unaffected by the changes.

The government said the reforms would be “fairer” than the current regime:

The latest figures show that the top 7% (the largest 117 claims) account for 40% of the total value of agricultural property relief. This costs the taxpayer £219mn. The top 2% of claims (37 claims) account for 22% of agricultural property relief, costing £119mn.

It is not fair for a very small number of claimants each year to claim such a significant amount of relief, when this money could better be used to fund our public services.^[14]

On 21 November 2024, Steve Reed, secretary of state at Defra, spoke at the Country Land and Business Association (CLA) conference.^[15] He acknowledged Labour had pledged in 2023 that it would not make changes to APR if elected. He said the party has now had to change its position “because we did not know the full extent of the country’s financial crisis”.

In a letter to the House of Commons Treasury Committee, Chancellor Rachel Reeves said the government expected landowners to respond to the proposed changes “in a number of ways, including by changing ownership structures”.^[16] Ultimately, the government has assessed that following the changes land prices would become “more affordable for farmers due to a reduction in tax-motivated investment in agricultural land”.

4. Reaction to the announcement of inheritance tax changes for farmers

4.1 Views from campaign groups and think tanks

Voices from the farming community are opposed to the policy, with some calling for strike action.^[17] Protests were held on 19 November 2024 in central London and in UK towns.^[18]

The Countryside Alliance has argued that while the government has a “legitimate aim” in seeking to limit the purchase of agricultural land as part of plans to avoid inheritance tax, the policy will impact family farms.^[19]

NFU president Tom Bradshaw said the measures would:

[…] snatch away much of the next generation’s ability to carry on producing British food, plan for the future and shepherd the environment.

It’s clear the government does not understand that family farms are not only small farms, and that just because a farm is a valuable asset it doesn’t mean those who work it are wealthy.

Let’s not sugar-coat this, every penny the chancellor saves from this will come directly from the next generation having to break-up their family farm.^[20]

The NFU said the government’s figures are “misleading”.^[21] It argued that “smallholdings and houses with a few acres let for grazing” might be worth under £1mn, but the asset value of food-producing farms is high, while profitability is low.

The CLA has done its own modelling and concluded:

Family-run farms—typically asset-rich but cash-poor—would be forced at best into a cycle of stagnation, asset sales, or debt to cover this tax burden, threatening the long-term viability of the UK’s rural landscape and food security.^[22]

Gavin Lane, deputy president of the CLA, said: “Either the government isn’t being honest with the public about the true impact of these reforms, or they don’t understand the nature of rural businesses”. CLA has cited a figure of 70,000 UK farms potentially being affected at the point of inheritance.^[23]

Founder of Tax Policy Associates Dan Neidle and Associate Professor at the University of Warwick Arun Advani disagreed with the CLA’s assessment.^[24] They noted that the CLA had derived its total from Defra figures for farm size and had not used HMRC data on the estates which actually take up the relief. The government has said the Defra data and HMRC data are “consistent” but “described different things”.^[25] Using Defra data on farm asset values, the government said, does not take into account “who owns the business, the nature of that ownership, how many owners there are, any borrowing the business has, and how they plan their affairs”.

Analysis by Mr Advani assessed use of the tax relief:

Among estates that benefited from agricultural relief between 2018 and 2020, less than half (44%) of individuals had received any trading income from agriculture at any point in the five years prior to death. Income from agriculture made up less than a quarter of their income on average. Of the remainder, 51% received income from rent, which is consistent with them being landlords rather than active farmers, although we cannot rule out that they were actively farming via a company.^[26]

In its briefing on the budget, the Resolution Foundation welcomed the changes to inheritance tax.^[27] It said BPR and APR were “significantly contributing to ‘horizontal inequity’, whereby estates with similar wealth levels faced different effective tax rates”.^[28] The Resolution Foundation assessed that the changes “would only affect a small number of estates”.^[29]

The Institute for Fiscal Studies (IFS) is also in favour of the measures.^[30] It has been calling for reform of inheritance tax, saying that APR and BPR “open up channels to avoid the tax”.^[31] IFS Director Paul Johnson said:

What the budget did was reduce the amount of additional relief that farmers get on agricultural land. It still means they’ll be significantly more generously treated than the rest of us and still more generously treated actually, than farms used to be in decades past.^[32]

However, IFS analysis has said that the policy could be tweaked.^[33] For example, farmers passing away in the next seven years will not have had the opportunity to avoid inheritance tax by making lifetime gifts. The policy could therefore be brought in more slowly, or gifts of agricultural property made before a certain future date could be inheritance tax free, regardless of the timing of the death.

Think tank Tax Policy Associates has suggested an alternative to the government’s policy.^[34] Founder Dan Neidle has proposed raising the cap to £20mn, so that the largest farm businesses would pay some tax. Everyone below that threshold would be subject to tax if the inheritors sold the farmland. This would mean heirs continuing to run a farm would pay no tax, while people who were not part of a farming family but had inherited land may sell it and pay the tax.

4.2 Views in Parliament

The measures have been debated in the House of Commons. Alistair Carmichael, chair of the Environment, Food and Rural Affairs Committee, among others, criticised the government’s approach:

Agricultural property relief is not a loophole; it has been a deliberate policy of successive governments for the past 40 years, designed to avoid the sale and break-up of family farms. […] These changes will have a ripple effect across the whole rural community.^[35]

Leader of the Conservative Party Kemi Badenoch wrote on X that her party opposes the tax changes and would reverse them if it returned to government.^[36]

Concerns have also been expressed in the House of Lords. In the House’s debate on the budget, Baroness Kramer (Liberal Democrat) noted “I think more people in this debate spoke on the future of family farms than on any other issue”.^[37]

The House of Lords also held a short debate on the future of farming families on 21 November 2024.^[38] Members called for the government to reverse the policy decision or put in place protections for family farms. They highlighted the challenges of farming life and its mental health impacts. Baroness Northover (Liberal Democrat), who tabled the debate, said “a solution must be sought that does not cause further damage to this sector, which has suffered so much in recent years”.^[39]

Responding for the government, Baroness Hayman of Ullock said the government’s commitment to British farmers “remains steadfast”.^[40] She said “farming and food security are the foundations of a healthy and resilient economy”. Baroness Hayman also argued that the government is working to make the sector more resilient and attractive to future generations to encourage succession.

5. Other government measures and the farming sector

In August 2024 the government set out a “new deal for farmers” to “restore stability and confidence in the sector”.^[41] It said the measures would include:

• optimising environmental land management schemes
• seeking a new veterinary agreement with the European Union to reduce “red tape at our borders” and enable more food exports
• protecting farmers from being undercut by low welfare and low standards in trade deals
• buying British produce when catering is government funded, for example in schools and the military
• setting up a new British infrastructure council to steer private investment in rural areas including broadband rollout in our rural communities
• speeding up the building of flood defences and natural flood management schemes, including through a new flood resilience taskforce
• introducing a land-use framework which balances long-term food security and nature recovery

The NFU responded positively to the ‘new deal’ and said it showed “positive intentions to achieve our shared ambition of boosting UK food security”. However, it cautioned there was “a lot of work to be done”.^[42]

In the autumn budget 2024, the government said the settlement for Defra prioritised “progress on our climate adaptation, food security, net zero and environmental goals”.^[43] Commitments included:

• £5bn over 2024/25 and 2025/26 to support the transition towards a more productive and environmentally sustainable agricultural sector in England, ensuring food security. This included £60mn this year for the Farming Recovery Fund.
• £2.4bn over 2024/25 and 2025/26 to support flood resilience.

Rachel Reeves has also listed other ways in which current tax rules support the agricultural sector:

[…] exemption from business rates for agricultural land and buildings, the ongoing entitlement for vehicles and machinery used in agriculture to use rebated diesel and biofuels, and the exemption from the plastic packaging tax for the plastic film used by farmers to produce silage bales. […] farmers are able to add together their profits from farming for two years or five years and be taxable on the average of those profits.^[44]

5. Read more

• Debate on ‘Farming and inheritance tax’, HC Hansard, 4 December 2024, cols 306–81
• QSD on ‘Farming families’, HL Hansard, 21 November 2024, cols 383–98
• Times (£), ‘The big question: Should farmers have to pay inheritance tax?’, 6 November 2024
• House of Commons Library, ‘Inheritance tax: Current policy and debates’, 5 November 2024
• Madeleine Speed, ‘Farmers lose sleep over budget inheritance tax crackdown’, Financial Times (£), 2 November 2024
• Steve Reed (secretary of state for environment, food and rural affairs), ‘Inheritance tax on farms is fair and balanced’, Telegraph (£), 1 November 2024
• National Farmers’ Union, ‘Budget blow for British farming, says NFU’, 30 October 2024

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Cover image by Siggy Nowak from Pixabay

This briefing has been updated ahead of the debate on 12 December 2024.