How many farms will be affected by Budget tax rises?
BBCThere has been an outcry from many farmers following the changes to inheritance tax for farms announced in the Budget. Farmers have travelled to London and are taking 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 to as few as 500.
Where does the 70,000 figure come from?
It comes from the Country Land and Business Association 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.
There are a couple of ways to get to that.
Yiorgos Gadanakis, associate professor of agricultural business management at the University of Reading, pointed to various sources, including Defra's Farm Business Survey, which suggest that between about 30 and 35% of farms in the UK could be valued at over £1m.
As there are about 209,000 farm holdings in the UK, that gives an estimate of between 62,700 and 73,150.
Another way is to look at the number of farms that are bigger than about 200 acres (81 hectares), because at average land prices that would be enough to mean inheritance tax was due. That figure comes out at about 70,000.
But of course a farm will only be affected once it is inherited, so 70,000 is not necessarily the right number to use.
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 a total of 462 inherited farms valued 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 farms 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%.
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 farms valued above £2.5m 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 40% of farms that were sold last year in England were bought by investors while 45% 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.
