Tax experts have cast doubt on the government's assertion that family farms will benefit from a £3m tax exemption. Prime Minister Sir Keir Starmer defended Chancellor Rachel Reeves' decision in the Budget to impose inheritance tax (IHT) on agricultural land valued over £1m, stating earlier this month that "in a typical case" farmers would be exempt up to "£3m before any inheritance tax will be payable".
However, the move has sparked outrage among farmers concerned about the potential need to sell land that has been in their families for generations, as reported by .
Now, several tax professionals have challenged the Prime Minister's claim as potentially "misleading" and not "realistic", according to the Financial Times (FT), pointing out that to qualify for the full exemption, farmers must meet complex criteria.
Emma Haley, legal director at Boodle Hatfield, commented to the FT: "It’s not necessarily that the £3mn figure that’s been bandied about is wrong, it’s more misleading."
"The difficulty is there are various traps that can limit the allowance that everyone has," she added.
Meanwhile, Camilla Wallace, senior partner at Wedlake Bell, told the FT that the £3m figure was "not likely to be realistic when you drill down", proposing £2.65m as a more accurate estimate for farm tax relief.
The new £3 million exemption for Inheritance Tax (IHT) would consist of combining a £1 million Agricultural Property Relief (APR) available after April 2026, alongside existing allowances of £325,000 and an additional £175,000 for homes bequeathed to descendants. To achieve the full £3 million exemption, it would need to apply to both partners in a married couple, leaving single, unmarried, or un-civil partnered farm owners ineligible.
Complications also emerge regarding the division of farm ownership post the death of the first spouse in order to benefit from the complete relief whilst staying under the £1 million APR limit. Detailing the issues, Haley commented: "On the first death you’re going to have to make sure you pass the estate to somebody else and they will become a joint owner with the spouse. It becomes very messy."
There is also a contention between HM Treasury (HMT) and the National Farmers’ Union (NFU) over how many farms will be affected by these IHT changes, with HMT estimating around a quarter and NFU arguing it's closer to three-quarters of º£½ÇÊÓƵ farms.
Revenue raiser
Speaking to MPs at the Liaison Committee before Christmas, when questioned about the anticipated target group for this tax policy change, Starmer revealed: "The purpose was to raise revenue in the budget."
He added: "It wasn’t aimed at a particular group of individuals. We inherited a really bad situation and we decided we couldn’t hit the pay packets of working people."
"It wasn’t targeted at this group or that group. What we tried to do was protect the family farm by putting a high threshold."
A government spokesperson stated: "Two people with farmland can pass on up to £3m without paying any inheritance tax. ""Our reform to Agricultural and Business Property Relief will impact around 500 estates a year. For these estates, inheritance tax will be at half the rate paid by others, with 10 years to pay the liability back interest free. ""This is a fair and balanced approach which fixes the public services we all rely on."
