Tax changes risk 'devastating' impact on family farms

As stakeholders across the industry process the implications of the government’s fiscal plans, that were announced last week, industry leaders and experts are continuing to voice their opinions on what needs to change and how the sector can adapt in these uncertain, changing times.

From rising costs to sustainability challenges, the responses have been mixed, but there is a clear consensus on the need for clear direction and robust support in the face of economic uncertainty.

Secretary and adviser to the Central Association of Agricultural Valuers (CAAV), Jeremy Moody

Jeremy Moody, secretary and advisor at CAAV, has highlighted the additional strain these tax reforms may pose to farmers. Mr Moody highlighted the financial strain these tax changes will place on farmers and landowners, noting that a farm valued at £4m could face up to £600,000 in tax liability, a potentially crippling investment that could lead to forcing land sales.

“If farmland has to be sold, the increased capital gains tax rate will mean more acres must go, reducing the farm’s production capacity and its ability to meet its overheads,” warned Mr Moody.

“These changes will affect many more family farms than the Government suggests,” he said, adding that the Budget failed to stimulate growth or support innovation in rural industries.

He expressed concern that these tax hikes, alongside cuts in farming support and higher National Insurance contributions, would further burden the agriculture sector.

Head of rural consultancy and partner at Knight Frank, James Farrell

James Farrell, head of rural consultancy and partner at Knight Frank Speaking on the ‘biggest tax raising budget in generations’, Mr Farrell said that the proposed changes 'threaten the very fabric of the countryside'.

He highlighted the importance of the rural sector in supporting the nation and welcomed its move to the centre of political debate.

Prior to the budget announcement Mr Farrell was concerned about how the rural sector would be treated following the rumours of tax reforms.

He was left disappointed by the government's lack of support for those within rural communities, stating they will be neglecting food production, land management and biodiversity.

He said: “Opening landowners and farmers to the full impact of inheritance tax, shows how detached and unsupportive this Government is towards the importance of land for three core imperatives for the UK.”

Mr Farrell blasted the £1m threshold, referring to it as ‘meaningless’, given the assets employed by even the smallest family run operations.

“Pulling the rug from farmers and removing APR and BPR is the worst-case scenario and can only result in long standing family businesses, that have been encouraged to diversify, failing,” stated Mr Farrell.

“This is not just significant for owner-occupiers; it has ramifications for tenant farmers too. Farms and estates will have to sell land, or property, to pay the inheritance tax, threatening all of these critical intents and adding further challenge to many already beleaguered rural communities.”

Alistair Christie, farm sales and valuations and Duncan Barrie, head of farm sales from Galbraith

Duncan Barrie, head of farm sales from Galbraith Mr Christie and Mr Barrie stated the threshold for APR changes is seen industry wide as too low, given the cap sits at just £1m.

They fear that many commercially productive farms and estates will now be party to taxation, which brings into question the figures outlined by the government, and given the NFU report most farms are currently operating on margins of less than 1%, additional financial obligations could be fatal.

They said: “Although the underlying value of agricultural land continues to grow over time, the profit margins in comparison are very low, as costs, inflation and low farm-gate prices have a combined effect.

“Many Galbraith clients are concerned, following the budget, that the UK government seems not to understand the agricultural sector and ultimately the unintended consequences of the application of the new tax measures post-April 2026.”

Referencing the chancellor’s intention to protect ‘family farms’, Mr Christie and Mr Barrie query the assessment that three quarters of family farms would be valued below the £1m threshold.

They said: “There is little that can be bought for £1m and this would be lucky to accommodate a smallholding.

“The average farm is around 220 acres and, with an average land price of £7k/acre, this amounts to £1,540,000 and makes no allowance for any buildings. Neither does this make any allowance for moveables such as stock valuations, growing crops, plant and machinery or any goodwill.

“A £3m farm will now potentially be subject to an inheritance tax bill of £400,000. At current interest rates and over a 15-year period, the succeeding family would need to find £45,871 per annum to finance the capital and interest repayments to meet the tax liability.

"As margins are so tight currently, this will place an exceptional burden on these families and in some cases render the business unviable.”

The timing of the changes to IHT has also drawn criticism, given the emphasis on transitioning farming towards greener practice and environmental protection.

They said: “The rules applying to potentially exempt transfers remain in place currently. This would indicate that a gift to a family member within one’s lifetime should still be exempt from inheritance tax, under certain conditions.

“Succession planning has always been tricky to address in farming families, but our experience has been that it can be an open and honest discussion – as well as empowering for all generations and one that should not be put off for ‘another day’.”

Virgin Money head of agriculture UK, Brian Richardson

UK head of agriculture for Virgin Money, Brian Richardson

Mr Richardson fears for the future of affordable food given the changes to APR, citing the increased costs of transition as an additional overhead farmers may not be able to bear alone.

Changes to APR have often been discussed in the lead up to previous budgets explained Mr Richardson, but this occasion sees the first change to the scheme since its introduction.

“Given the hard work and the different challenges many family farms face in making a sensible living from the job they have done for many generations, the worry of how they continue producing high quality food at incredible value for money into the next generation is very real,” he said.

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“What this change does highlight very clearly, is the need to plan carefully for succession on the farm, to make sure everyone understands what is going to happen and how it will work – now including planning for any costs.

“The previous IHT exemption on farmland through APR undoubtedly meant some of those discussions were left until the last minute, often to the frustration of the next generation waiting to take up the reins.

“If nothing else, a fresh look at plans for succession on the farm and what all stakeholders want and need to achieve will be worthwhile against the tough background of this announcement,” Mr Richardson concluded.