More than three-quarters of farms in England and Scotland of 50 hectares or more in size will be affected by the planned changes to Inheritance Tax (IHT), new independent analysis from AHDB shows.
It has calculated that 42,204 out of 54,938 farms (76.8%) across the two nations will be impacted by the new tax rules, which will see the full 100% relief from Inheritance Tax restricted to the first £1m of combined agricultural and business property, from April 2026.
The study looks at average balance sheet data mainly sourced from Defra, the Farm Business Survey and the Scottish Government. More than half of those affected are involved in cereals or general cropping production as their main enterprise, with the rest predominantly livestock producers or mixed farming operations.
The analysis assumed that the maximum threshold that can be handed down IHT-free is £2.65m if using both spouses, APR/BPR relief and the nil rate band (NRB). This is due to the tapering down of the NRB to £0 once the value of total estate is £2.65m.
It is assumed that this can be accessed by a married couple with or without children on the basis that they have a rigid partnership agreement in place. If a rigid partnership agreement is not in place, the maximum amount that can be passed on tax free is £1.65m.
It is also assumed that an unmarried or divorced person with children/grandchildren can pass on a maximum of £1.5m tax free and that an unmarried or divorced person with no children/grandchildren can pass on a maximum of £1.325m tax free.
When calculating total assets of farm holdings above 100ha, AHDB concluded that average farm values will be more than £2.65m and be at risk of being affected. This is based on average land values of all farm types, average balance sheet data (including debt) of all farm types and tenancy types and detached rural property values.
It is assumed that a farmhouse in England is the average value of a detached rural property quoted at £459,400.
Scale and asset size
AHDB analyst Tom Spencer said: “Our calculations show that cereals and general cropping farms are the most likely to be affected due to their scale and asset size. For livestock farms, it is those businesses with single person ownership that are most at risk.”
AHDB has already reported that, due to the low rate of return on net current assets in farming, the most cost-effective way a cereals producer could pay their expected tax burden would be to sell parcels of land.
AHDB’s economics and analysis director, David Eudall, added: “The first stage has been to identify the farms at risk, so they can review their own circumstances and implement appropriate actions.
“There are 300 working days until April1, 2026, when the tax changes come into effect. This means 140 farming businesses across England and Scotland per working day, from today (28 January 2025) onwards, will need to ensure their business is set up to manage their tax implications.
“It is critical for any affected farming enterprise to seek out expert tax and business planning advice. Succession planning was already important in agricultural farming businesses, now it is essential.”
- You can listen to a more comprehensive analysis of AHDB’s findings in the latest Agonomics podcast here: Agonomics with David Eudall