How many farms will be affected by Budget tax rises?

There has been an outcry from many farmers following the changes to inheritance tax for farms announced in the Budget. Farmers travelled to London and took part in a rally near Parliament to highlight their concerns.

From April 2026, inherited agricultural assets worth more than £1m, which were previously exempt, will have to pay inheritance tax at 20% - half the usual rate.

There have been different claims about how many farms will be affected.

These vary from as many as 70,000 overall to as few as 500 per year.

Where does the 70,000 figure come from?

It comes from the Country Land and Business Association (CLA) whose president, Victoria Vyvyan said: "We estimate that capping agricultural property relief at £1m could harm 70,000 UK farms, damaging family businesses and destabilising food security."

It was also used by Liberal Democrat leader Sir Ed Davey, who said the government needed to "listen to rural communities" and reverse the change.

It is not a figure for the number of estates that will have to pay inheritance tax each year, it is an estimate of the total number of farms worth enough to pay.

The CLA based it on an £8000 per acre average land price, which would mean that you would need to have 125 acres (51 hectares) of land to reach the £1m tax-free limit.

It cited Defra figures for 2023 (table 2_3a) that show that there were 30,000 UK farms between 50 and 99 hectares and another 40,000 farms over 100 hectares, giving the total of 70,000 farms.

Of course, a farm will only be affected once it is inherited, so 70,000 is not necessarily the right number to use.

But the CLA defended its use of this figure on the basis that death is unpredictable, so all these farms would have to take account of the possibility of an inheritance tax bill when making plans.

Where does the 500 figure come from?

It comes from the Treasury, which says it expects 500 estates to be affected by the changes each year.

There were 462 inherited estates with assets covered by Agricultural Property Relief above £1m in 2021-22, according to HM Revenue and Customs (HMRC):

• 345 valued between £1m and £2.5m

• 80 at £2.5m to £5m

• 37 above £5m

Under the new rules, those 462 estates would be affected by the 20% inheritance tax on any value above £1m (not on the whole value). The normal rate of inheritance tax is 40%.

Estates with agricultural assets can also claim for Business Property Relief (BPR), which is also being capped under the Budget's changes to inheritance tax, but HMRC figures released by the government suggest that taking BPR into account doesn't significantly change the overall figures.

However, as Dan Neidle - founder of the independent Tax Policy Associates - points out, like for the rest of the population, there is no inheritance tax to be paid on the value of property up to £325,000, bringing the untaxed total to £1.325m.

If a farmer is married, his or her spouse would be able to pass on another £1.325m tax free, taking the total untaxed amount to £2.65m.

There were 117 estates with APR assets valued above £2.5m in terms of Agricultural Property Relief in 2021-22, according to the HMRC figures.

In addition, there is a £175,000 tax-free allowance on a main residence when it is being passed on to children or grandchildren. This brings the total untaxed amount for a farming couple to up to £3m.

Paul Johnson, the director of the Institute for Fiscal Studies (IFS), an independent economy think-tank, told Sky News: "The changes will affect a remarkably small number of some of the most valuable farms."

He added: "[Farms are] still more generously treated, actually, than farms used to be in decades past."

Steve Reed, the secretary of state for the environment, food and rural affairs, confirmed the "vast majority" of farmers will not be affected by changes. Writing in the Telegraph, he said "only the richest estates will be asked to pay".

He also wrote: "It’s become the most effective way for the super-rich to avoid paying their inheritance tax."

Analysis by the property consultants Strutt & Parker found that almost 40% of farms that were sold last year in England were bought by investors while 47% were bought by working farmers.

How much could be raised?

The chief secretary to the Treasury, Darren Jones, has said that the inheritance tax exemptions currently cost "about £1bn a year for taxpayers".

The Treasury expects that the changes to inheritance tax , as well as changes to Business Tax Relief, will raise £230m in 2026-27, the first year of their introduction. This rises to £520m by the end of the forecast in 2029-30.

But the independent Office for Budget Responsibility (OBR) warns that there is high uncertainty around these figures.

Is the tax affordable?

Sam Kirkham, who specialises in agriculture at Albert Goodman accountants, says "people look at the value of farms and think the farmers must be wealthy".

But she says if the farm passes down to the next generation to continue to produce food, they never get to realise that capital.

And she adds farm profits are too low to meet the additional cost of inheritance tax.

Government research suggests that an average farm last year made a profit of about £45,300, although that may be overstated as it is based on a survey that excluded farms that bring in the least money.

Other government figures suggest that the average return on capital for farms (the amount of value farmers can extract from things like farmland and machinery by growing crops for example) is only about 0.5%, which is low compared with other businesses.

The government points out that people inheriting farmland would have 10 years to pay the inheritance tax bill interest-free, unlike other inheritance tax, which needs to be paid immediately.

UPDATE 4 November: The unit on a measure of area was corrected from hectares to acres. A sentence was added detailing the residence nil-rate band rate of inheritance tax.

UPDATE 10 December: Since this piece was first published on 2 November, we have updated the story to reflect new information. An earlier version cited research from Strutt & Parker suggesting that 45% of farms bought in 2023 were by working farmers. Raw data supplied by the firm shows the figure to be 47%.

We have also updated the section around the CLA's figures. The previous version attempted to reach the CLA's 70,000 figure. We have replaced this information with the correct formulation that reflects the CLA's calculation. The story now also makes clear that the 462 figure refers to estates with APR assets over £1m and adds context to reflect that some farm estates also claim BPR.

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