Changes to agricultural relief: another nail in the coffin for UK agriculture

This article was originally posted on Yorkshire Bylines.

The UK’s agricultural sector is facing yet another challenge. With recent changes to Agricultural Property Relief (APR) announced in the Autumn Budget, family farms – the backbone of British agriculture – are at risk. Here’s why this policy shift could be another nail in the coffin for UK agriculture.

In the autumn budget, the chancellor announced significant changes to APR, a provision that previously allowed farms to be passed down through generations without hefty tax burdens. Starting in April 2026, farms valued over £1mn will be subject to inheritance tax (IHT). This means IHT will apply with a 50% relief, resulting in an effective tax rate of 20% for qualifying farms. The chancellor stated that this change will impact approximately 25% of farms –a figure I completely disagree with.

Previously, APR had enabled landowners – including farmers – to pass their farms to their next of kin without tax deductions. This relief was essential for ensuring smooth transitions in farm succession, a tradition that dominates the industry.

In the run-up to the election, the Labour Party promised farmers that they would not alter APR. Steve Reed, the DEFRA Secretary, explicitly stated, “We have no intention of changing APR”. Earlier in the year, the Conservative Party criticised Labour for allegedly planning to increase taxes on UK family farms. In response to media headlines and backlash, Steve Reed has since replied that farmers will have to “learn to do more with less”. The National Farmers Union is also planning a protest outside Westminster on 19 November, joining farmers around the world in responding to governmental decisions on agricultural policy.

A threshold too low

The critical issue lies in setting the relief threshold at £1mn –a figure that is simply too low. Purchasing a productive farm for less than £1mn is nearly impossible; this amount aligns more with smallholder farming practices. The average farm size in England is 88 hectares (with regional differences and varying land quality), and acquiring and operating a farm of this size easily exceeds £1mn.

According to recent land value estimates, agricultural land in England averages around £7,000 to £10,000 per acre (approximately £17,000 to £25,000 per hectare). This means that just the land for an average-sized farm could cost between £1.5mn and £2.2mn, not including essential equipment and infrastructure.

Asset rich, cash poor

Basing this policy solely on land value overlooks the industry’s reality. The phrase ‘asset rich, cash poor’ is often used to describe farmers. While the total value of a farm –including appreciated property and land values –might exceed £1mn on paper, the actual income and quality of life tell a different story.

For instance, in 2018, upland farmers earned an average annual income of just £15,500. This figure includes livestock sales, farm subsidies (before Brexit cuts), agri-environmental payments, and diversified income streams. Despite owning enterprises valued at millions, many farmers see modest returns and often earn below the national median income. This contributes to the industry’s struggle to attract new entrants.

To illustrate the potential financial burden, consider a family farm valued at £2mn. Under the new policy, inheritance tax would apply to the amount exceeding the £1mn threshold. With a 50% relief on the £1mn over the threshold, the taxable amount becomes £500,000. Applying the standard IHT rate of 40% to this amount results in a tax bill of £200,000.

Faced with such a substantial tax bill, farmers will probably have to sell land or other vital assets to foot the HMRC tax bill. This could jeopardise the future viability of their farms and undermine the continuity of operations.

High costs, low liquidity

The notion of ‘farm’ and ‘farm assets’ varies by context. In lowland farms, a combine harvester can cost around £300,000. Building new barns and facilities to house livestock and store crops can incur expenses in the hundreds of thousands. These substantial investments further illustrate that high asset values do not equate to high liquidity or disposable income.

The consequences of forced asset sales

At a critical moment in the farm development cycle –the loss of a parent –farmers will face increased tax bills that may force them to sell farm assets to cover the costs. Forced sales not only disrupt the continuity of farm operations but also have deep emotional repercussions for families who’ve cultivated the land for generations.

Breaking up farms can lead to fragmentation of land, loss of efficiency, and the erosion of rural communities. It doesn’t just affect individual families; it has broader implications for the agricultural industry as a whole.

Counterarguments and realities

Some might argue that this policy will increase land supply, allowing more new entrants into farming. However, the reality is that breaking up farms will likely result in land being purchased by the highest bidders –often large agribusinesses or investors –potentially excluding new entrants who cannot afford the large capital required for profitability.

There is growing suspicion about the intentions of corporate agriculture. The rise of mega-farms in the UK and the decline of small family farms –millions of which have failed across Europe in recent years –highlight a trend fuelled by poor agricultural policy management. According to Eurostat, the number of farms in the EU decreased by about 5.3 million between 2005 and 2016, with small farms being the most affected.

Public perception and the broader impact

Public sympathy around this issue is limited. It’s easy to adopt the misinformed perspective of ‘Why shouldn’t we tax rich landowners and the landed gentry?’ While targeting wealthy landowners for taxation seems fair in principle, this policy misses the mark. It indiscriminately affects family-run farms that operate on thin margins, rather than exclusively taxing those with substantial liquid assets.

Farmers do not seek sympathy from the general public. However, the public should understand what changes to the farming industry mean for them personally. The most immediate impact is on food production; food prices may rise, and the ‘No Farmers, No Food’ sentiment becomes increasingly relevant.

Farmers contribute significantly to the GDP, with food and farming contributing £120bn annually. They play a crucial role in local and regional economies through direct selling and diversified ventures. They also offer social and environmental benefits, such as sustaining intergenerational farming activities, opening the countryside to urban visitors, and participating in agri-environmental schemes that promote biodiversity and environmental stewardship. This is at risk due to poor handling of agricultural policy.

Unintended consequences and the need for reconsideration

The government and the public must recognise the unintended consequences of imposing a £1mn cap on APR. Without adjustments, this policy risks accelerating the decline of family farms, with ripple effects that could impact food security, prices, and rural economies. I have written many times about the need for policymakers to have a greater understanding of the realities faced by farmers. But perhaps they are not interested in supporting family farming; this policy change around APR seems to suggest so.

A more balanced approach is needed. Alternatives could include a graduated tax based on actual income rather than land value, or exemptions for family-run farms below a certain income threshold. Other metrics around farm size or output could also be considered. Such measures could mitigate adverse effects while still addressing inheritance tax concerns and actually taxing the wealthy.

Farmers will also need support in navigating this. For many, succession planning is a difficult topic and often handled poorly. Now, I would argue many farmers cannot ignore it, out of fear of huge tax bills. It would be wise for farmers to begin discussions with solicitors and explore alternatives for transferring the farm to the next generation, such as the seven-year transfer rule or trust options.

Conclusion

While the intent to capture tax from wealthy landowners is understandable, this policy could inadvertently be another nail in the coffin for a great industry. It doesn’t just impact farmers; it affects consumers, communities, and the nation’s heritage. It’s imperative that policymakers revisit this threshold to protect not just an industry, but a way of life integral to the nation’s wellbeing.