The Debate Over Farmers Paying Inheritance Tax

Everyone has an opinion on the recent changes in the inheritance tax rule for farmers so we thought we would take the opportunity to explain the current rules and the changes that are taking place.

First of all, let’s look at inheritance tax. Depending on your status when you die, it is possible that Inheritance Tax may be payable.

The rules regarding whether inheritance tax is payable vary depending on if you are married or in a civil partnership, own property, have children and the value of your Estate.

In simple terms, we pay inheritance tax in the UK on assets with a value over £325,000. At the moment, the average person will pay inheritance tax on the value of all assets owned, to include property, personal effects, savings, shares, investments and life insurance with a value over £325,000. The difference is taxed at 40%.

If we are married or in a civil partnership when we die and our estate is passing to our surviving spouse or civil partner, no inheritance tax is payable.

There are additional reliefs that can be claimed such as the Residence Nil Rate Band, applicable if we own property which is passing to a direct descendent, and Transferable Nil Rate Band, which is an additional benefit when estates have passed to surviving spouses. Here you can find more information regarding the rules of inheritance tax.

How have inheritance tax rules changed for farmers?

The previous rules meant that some farmers could claim 100% Agricultural Property Relief (APR) which meant the value of their agricultural property could pass to their Beneficiaries free of inheritance tax.

The agricultural property that qualified for APR is land or pasture that was used to grow crops or to rear animals and included:

• Growing crops
• Stud farms for breading and rearing horses and grazing
• Trees that were planted and harvested every 10 years
• Land not being farmed under the Habitat Scheme
• Land not currently being farmed under a crop rotation scheme
• The value of milk quota associated with the land
• Some agricultural shares and securities
• Farm buildings
• Farm cottages
• Farmhouses

There was agricultural property that did not qualify for APR which included:

• Farm equipment and machinery
• Derelict buildings
• Harvested crops
• Livestock
• Properties subject to a binding contract for sale

To be able to qualify for the relief, the property must have been part of a working farm in the UK.

In addition, the property must have been owned and occupied for agricultural purposes immediately before its transfer for:

• 2 years if occupied by the owner, a company controlled by them, or their spouse or civil partner
•  7 years if occupied by someone else

The rate of APR differs depending on the circumstances.

100% relief of inheritance tax could be claimed if:

• The person who owned the land farmed it themselves
• The land was used by someone else on a short-term grazing licence
• It was let on a tenancy that began on or after 01 September 1995

In any other case, relief on inheritance tax could be claimed at 50%.

In the recent Budget, it was announced that from 06 April 2026, the full 100% relief from inheritance tax on farms will be restricted to the first £1million of combined agricultural and business property.

Any amount above £1million would result in land owners only being able to claim 50% relief from inheritance tax and will pay a reduced rate of inheritance tax of up to 20% rather than the standard 40%. This tax can also be paid in instalments over 10 years interest free, rather than immediately. This differs from other types of inheritance tax, which in some cases must be immediately and where the 10 year instalment option is available, interest accrues from 6 months from the date of death.

On top of the other available exemptions to farmers, the above reliefs are on top of the other spousal exemptions and Nil Rate Bands that people can access for Inheritance Tax too. Therefore, this means that 2 people with farmland, depending on their circumstances, can pass on up to £3million without paying any inheritance tax.

Despite farmers still being given exemptions over other people who have to pay inheritance tax, this remains a contentious issue.

Below we outline some of the arguments on both sides of the debate:

Arguments for Farmers paying Inheritance Tax:

1. Equity and fairness – It is argued that farmers should not be exempt from inheritance tax simply due to their profession.
2. Revenue generation for public services – inheritance tax contributes to Government revenue which funds essential public services and including farmers helps to ensure a broader tax base and potentially reduces the burden on other taxpayers.
3. Discouraging wealth concentration – farms are often large with a high value. Applying inheritance tax to these estates could help prevent the excessive accumulation of wealth in a single lineage.
4. Encouraging efficient land use – applying inheritance tax to farms may encourage farmers to optimise their operations or sell underutilised land. This could lead to more efficient agricultural practices or make land available for new farmers, enhancing productivity and sustainability.
5. Currently, non-farmers are purchasing farms by way of an inheritance tax planning exercise to reduce the amount of inheritance tax that they will pay on wealth, which has been accumulated outside of the farming trade.

Arguments against farmers paying inheritance tax:

1. Impact on family-owned farms – some critics highlight that farms are small family run operations. Having to pay inheritance tax could result in families having to sell land or assets.
2. Preserving agricultural heritage – farming is often viewed as a cultural cornerstone passing through generations. In applying inheritance tax to farms this could threaten this heritage and discourage younger generations from continuing with the family legacy.
3. Unfair burden on a vital section – agriculture is critical to food security and the economy. Farmers often have wealth tied up in land and equipment rather than in liquid assets which can differ from other industries. This could make it harder to pay large tax bills without selling core assets.
4. Risk to rural communities – having to sell family farms due to inheritance tax obligations could lead to the consolidation of farmland by large corporations.

Despite the Government still giving farmers considerable inheritance tax free exemptions, the debate over this new legislation continues.

Many people will continue to have an option on this topic, and it is yet to be seen how this legislation affects farmers and the economy moving forward.

If you would like to discuss inheritance tax or estate planning, please call us on 01279 295047, or complete our enquiry form and we will be in touch.