Changes to inheritance tax relief threaten family farms in the UK

Upcoming tax reforms could jeopardize the future of family-run farms across the UK.

Changes to inheritance tax relief threaten family farms in the UK

Farmers in the North and North-East of the UK are bracing for significant changes to inheritance tax relief that could impact their ability to pass on family farms to the next generation. Starting April 6, 2026, reforms announced by Chancellor Rachel Reeves will alter the current agricultural property relief (APR) and business property relief, which have traditionally provided substantial tax benefits for qualifying agricultural assets.

Understanding the new inheritance tax relief structure

The current system allows for up to 100% relief on inheritance tax for qualifying agricultural assets, which has been a crucial support for family farms. However, under the new rules, this relief will only apply to the first £1 million of combined agricultural and business property. Beyond this threshold, the relief will drop to 50%, meaning that estates valued over £2 million will face a hefty tax bill.

For instance, a family farm valued at £2 million could incur an inheritance tax liability of at least £200,000, a significant financial burden that could jeopardize the farm’s future.

Concerns from the farming community

The National Farmers’ Union (NFU) Scotland has expressed grave concerns regarding these changes, warning that they could have devastating consequences for family farms. A spokesperson highlighted that the reforms could severely impact liquidity during succession planning, making it difficult for families to reinvest in their farming operations. This could lead to a contraction in farmland available for tenancies and contracts, ultimately threatening food production and rural economies.

Political reactions and future implications

Political reactions to the proposed changes have been swift and critical. Scottish Conservative politicians have labeled the reforms as a “death knell” for family farms, arguing that they will hinder the ability to pass farms from one generation to the next. The fear is that without adequate reliefs, many family-run farms may not survive the transition, leading to a loss of agricultural heritage and a decline in local food production.

As the agricultural community prepares for these changes, there is a pressing need for clarity regarding funding and support from the government. The Treasury has indicated plans to extend the scope of agricultural property relief to include land managed under environmental agreements, but the specifics remain unclear. Farmers and stakeholders are urging the government to provide a robust, multi-annual budget that supports the agricultural sector, ensuring that family farms can continue to thrive in the face of these challenges.