Should farmers have to pay inheritance tax?

Inheritance tax changes announced in the budget mean that from April 2026 agricultural property relief will be capped at £1 million. The government says the cap is necessary to stop the super-wealthy from exploiting the relief. Critics argue it will destroy family farming and force many to sell up to afford large tax bills. Thousands of farmers plan to rally in London to protest against the chancellor’s tax raid. We ask if farmers should ever pay inheritance tax.
Sir Edward Troup, a former director general of tax and welfare at the Treasury
The best time to tax someone, Lord Salisbury is supposed to have said, is when they are dead. The British people do not seem to agree.
Budget changes to reduce the generous IHT reliefs for farmland have whipped up a storm. But whether the storm has been generated by genuine family farmers, by those who feel that the British landscape is under threat, or by absentee investors in farmland as a tax-saving wheeze is far from clear.
• Farmers protest live: Thousands to stage rally against inheritance tax
Let’s look first at investors. IHT may be unpopular, but a 100 per cent tax break for absentee owners of farmland was, in large part, a historical anomaly exploited by tax advisers.
What about the threat to the landscape? The poet Thomas Gray described a scene of lowing herd winding slowly across the lea, past fields and burgeoning hedgerows — and it is an image to treasure. We should fight to protect the countryside, but if the existing IHT reliefs were supposed to achieve that they have failed dismally.
The loss of wildflower, woodland and wildlife habitat over the past century is a national tragedy. There are some farmers who are working hard to reverse this, but the government’s role should be through subsidy and regulation, not through tax reliefs on death.
This leaves the case for the tax relief to ensure that family farms can be passed down through the generations. An unlimited tax relief is unwise and unaffordable.
The debate should not be about whether limiting the relief is good policy but on whether maintaining relief, even at £1 million (in fact, it could be much higher for a couple when other reliefs and the ability to pass on lifetime shares in the farm are taken into account), will actually make any difference to the sadly diminishing number of small family farms.
Rachel Reeves has rightly started with a zero-based approach — all tax reliefs need to justify themselves. She has given the farming community the benefit of the doubt in maintaining the relief at £1 million. The ball is in the farmers’ court to justify the relief at its new level.
Jonathan Roberts from the Country Land and Business Association, a group for landowners
The government says that changes to IHT reliefs will only affect 500 of “the wealthiest landowners” each year. This isn’t true.
Aside from the fact that a bigger farm does not equate to bigger profits, we calculate that farms of about 250 acres — roughly the size of the average farm — could be dragged into paying death duties.
There are also farms that have diversified, as encouraged by the government, to develop other income streams to protect their enterprises from market volatility. This makes them even more likely to be liable for tax under the new system.
The changes have put a ticking time bomb under 70,000 family farms and businesses, all of which will be saddled with a crippling tax bill.
Ministers say they cannot afford to let farmers die tax-free. I say we cannot afford to break up the family farm. We cannot afford to make food production unviable. We cannot afford to break up multi-generational family businesses which are so often at the centre of rural economies. If even 5 per cent of rural businesses fold, then 190,000 jobs would be lost.
After the election we expected the government to go for growth. That was its core manifesto promise. We know that the rural economy is about 14 per cent less productive than the national average. By closing that gap through planning reform, more affordable housing and improved connectivity, rural businesses could add £40 billion to the national economy. But we have seen little in the way of new policy to meet this ambition.
A simple message needs to ring around Whitehall and Westminster — it is businesses that create growth, not the taxman. No country ever taxed its way to prosperity. With the right support, rural businesses can grow the economy, create good jobs, feed the nation, protect the environment and reverse biodiversity decline. After this budget, however, the right support seems a long way off.