Farmers got an unexpected early Christmas present on 23rd December, when the government announced that the threshold for Agricultural and Business Property Reliefs, dubbed the ‘farm tax’ by many, will be increased from £1m to £2.5m when it’s introduced in April 2026. The heavy braking on this policy was more akin to a tractor performing the same manoeuvre, but unfortunately not quite performing a U-turn.
As the original measure was announced way back in the 2024 Autumn Budget, the surprise pre-Christmas concession came after the government faced fierce opposition from both the farming community and many businesses. Environment secretary Emma Reynolds said, “We have listened closely to farmers across the country and we are making changes today to protect more ordinary family farms. It’s only right that larger estates contribute more, while we back the farms and trading businesses that are the backbone of Britain’s rural communities.”
What has changed?
Amendments will now be made to the 2025 Finance Bill, with the key change being that the threshold at which 100% Agricultural Property Relief (APR) and Business Property Relief (BPR) will apply, rising from £1m to £2.5m per estate, with 50% relief continuing to apply to qualifying assets above that level.
The government also announced that a transferable allowance of up to £5m will be granted to spouses or civil partners and that this will also apply to people who were widowed before the policy was introduced. HMG has claimed that the number of estates likely to be affected in 2026/27, will drop to below 200, with their estimate being 185.
This follows an announcement in the 2025 Autumn Budget, when it was confirmed that the original £1m allowance would be transferable between spouses and civil partners, and that unused allowance could still be claimed where the first death occurred before 6 April 2026. The allowance is now set to remain fixed, at least until 5 April 2031.
Stop the family farm tax campaign
The National Farmers’ Union, working alongside other UK farming organisations such as the Countryside Alliance, has been pressuring the government to reconsider the policy affecting farming families’ ability to pass on farms to other family members.
A NFU spokesman said, “Most of our farmer members have been hugely concerned about the new rules with some having been forced into changing their succession plans already. For some, that effort may now prove to have been unnecessary, assuming there aren’t even more changes to the proposals before next April.”
He went to say, “While the increase in the nil band is a sensible move, it’s difficult to understand why these changes have been announced in such an ad hoc way and less than a month after the Budget. The stress this whole process will have caused farming families should not be underestimated and we call on the government to commit to a moratorium on any tightening of the IHT rules for at least 10 years, to allow the family farming community some certainty over passing on their farms to their children.”
Reaction from the farmers
Keith Swannick a small farmer from Shropshire said, “Whilst I’ve pleased that the effect of this awful tax has been eased somewhat, it does not change the fact that I and many other farming colleagues have spent months planning for a much harsher tax regime. During this period, many of us have made irreversible decisions, such as selling land or speeding up our succession planning.”
Another farmer, David Griffiths, now in his sixties, said “Everyone told them the threshold should be more like £4m, as the average family farm is around 400 acres and the going rate for agricultural land has been around £10k per acre in recent years. They introduced the original legislation without any consultation from those who will be affected, like me!”
Reaction from accountants
On accounting forums, pretty much every accountant who has a farming client has pointed out that the original legislation was rushed, not thought through and with no real understanding of how family farms operate. Rachel Reeves has merely looked at the Balance Sheets of small family-owned farms and thought, Ooh, they have assets of circa £4m, I’ll have some of that!
What Dear Rachel failed to do was to also look at the Profit & Loss Accounts attached to those Balance Sheets. Had she done do, she would have realised that most farmers operate on very small margins, with the Return On Capital Employed, being tiny, Also, most farmers work 60+ hours a week for an income, that on an hourly basis, is often below the national minimum wage.
The consensus amongst my accounting colleagues is that Dear Rachel introduced the ‘Farm Tax’ without having appreciated that there’s a huge difference between those who are actively farming their land, with the intention to pass it on to the next generation, as opposed to the Jeremy Clarkson’s of this world, who bought his 1,000+ acre Diddly Squat Farm as a tax-efficient capital investment.
Accountant’s view
Whilst I was pleasantly surprised at the government’s partial U-turn on the farm tax, I was also left wondering how many more of Rachel’s Reeves’ ill thought out and unpopular tax increases may now be amended, if not dropped altogether.
If Dear Rachel were to take my advice, she should sack most of her incompetent team at the Treasury who originally came up with the various tax-raising measures, but clearly without doing much, if any, research on the potential impact of those tax changes.
My final piece of advice to the Chancellor is to bring in experts from outside government, who are both skilled and experienced in their fields, to provide detailed targeted research into any proposed area of tax. These specialists would be able to provide reasoned predictions as to the likely effect of any such taxes.
Sadly though, I suspect that my advice will fall on deaf ears.
