Ministers should give farmers an inheritance tax holiday to prevent unfair treatment under future tax reforms, according to the Institute for Fiscal Studies (IFS).
The IFS has warned that the government’s proposed changes to agricultural taxes risk treating some landowners unfairly and could affect food security if they are not reduced properly. Last month, Chancellor Rachel Reeves announced in her budget that farmers with businesses worth more than £1 million could be hit with a 20% inheritance tax, sparking bulldozer protests outside Parliament.
Previously, the government had promised that there would be no change in the exemption of agricultural property, which exempted farmers from paying inheritance tax. A new analysis by the IFS concludes that although it is very unfair to treat agricultural goods as other taxable goods, special considerations are needed to avoid unintended consequences.
David Sturrock, chief research economist at the IFS, said: “Current farm owners who die in the next seven years (but after the new regime comes into effect in April 2026) will have no chance of avoiding inheritance tax by making lifetime gifts. . If the government wishes to give current farm owners the same opportunity to avoid inheritance tax as owners of other assets, for example, it can make long-term gifts of agricultural property made before a certain future date exempt from inheritance tax, regardless of the time. death.”
Treasury officials are reportedly exploring scaling back the policy, including amending gifting rules for over-80s to pass on their farms without having to live for seven years after making a gift.
Despite the pressure, Chancellor Reeves is understood to be holding firm, aiming to target wealthy investors who buy land to avoid inheritance tax – a practice blamed for driving up land prices. Labor insists that the policy focuses on fairness and preventing tax evasion.
However, many farmers argue that while they may be rich because of land ownership, they often lack money. Falling farm wages, inflation, poor harvests, and intense competition among retailers mean that many farmers are taking home less than the minimum wage.
Tax expert Dan Neidle has done research that suggests tax reforms may hit hard-working farmers more than tax evaders. He proposes to level the inheritance tax at 40% but only pay it when the land is sold, thus avoiding the impact on those who wish to pass the family farm on to relatives. Needle also suggests a “clawback” approach where the estate tax is refunded if the farmland is sold at a certain time.
He also recommends raising inheritance tax to around £20 million, so only the largest farm businesses are affected.
Tim Farron, a local Liberal Democrat spokesman, commented: “The Government hid behind the IFS to try to justify this disastrous policy. The same organization is telling them that their proposals need to be revised.”
A spokesman for the Treasury responded: “As the IFS has said, the existing rules for this exemption are incorrect and ineffective. We are committed to implementing the policy fully and we are not considering any cuts.”
