There has been a predictably angry reaction within the farming community to today’s Budget announcement by Chancellor Rachel Reeves on changes to Agricultural Property Relief (APR).
The two big announcements as far as farming is concerned were the removal of APR above £1m and as freezing of the annual agricultural budget at £2.4bn.
APR ‘disaster’
From April 2026, the first £1m of combined business and agricultural assets will continue to attract no inheritance tax at all, but inheritance tax will apply with 50% relief, an effective rate of 20%, above that threshold, affecting many farms.
The APR announcement was part of wider changes that will see the £1m inheritance tax threshold freeze extended by further two years to 2030, with unspent pension pots also subject to the tax from 2027.
The Chancellor has also increased Capital Gains Tax and the National Insurance paid by employers has increased,
It is all part of an overall £40bn tax increase to try and repair the current financial black hole and fund higher spending.
The NFU described the Budget as ‘a blow to British farmers and could lead to food price rises’.
NFU president Tom Bradshaw said: “It’s been a disastrous budget for family farmers, and especially tenant farmers. When you look farmers in the eye and make them a promise, keep it. The shameless breaking of clear promises on Agricultural Property Relief will snatch away the next generation’s ability to carry on producing British food, plan for the future and shepherd the environment.
“It’s clear the government does not understand that family farms are not only small farms, and that just because a farm is a valuable asset it doesn’t mean those who work it are wealthy. Let’s not sugar-coat this, every penny the Chancellor saves from this will come directly from the next generation having to break-up their family farm.
“This is one of a number of measures in the Budget which make it harder for farmers to stay in business and significantly increase the cost of producing food.”
NFU Scotland said the Chancellor had ignored warnings by farming unions on on the impact of changes around farming taxation.
“Changes to Inheritance Tax and Agricultural Property Relief will affect the liquidity on succession for farms above the £1 million threshold set, hitting many family farms, regardless of sized or type. Decisions to reinvest in these farming businesses will be shelved and the knock-on ramifications for the wider rural economy, and businesses up and downstream will be significant,” it said.
“This decision will generate only marginal benefits in filling a financial black hole but causes huge difficulties for some and will act as a barrier to those who wish to get a start in farming.”
Tenant Farmers Association chief executive, George Dunn, said “The changes announced to BPR and APR leave us with huge concerns. The reduction to £1 million of the limit on the value of estates that will be tax free on death will inevitably hit large, let estates more heavily than small owner occupiers since they will be more likely to breach the £1 million limit. Having to pay a 20% tax bill on half the value of estates over £1 million of value following every death, will be a major blow to privately owned let estates.
“The tax changes to be introduced from April 2026 could lead to a significant amount of land disposals from private estates, as we saw when death duty rates caused the breakup of rural estates in the middle 20th century.”
“The £1 million tax-free exemption may help small-owner occupiers, but it will not help small tenant farmers on large estates, particularly those occupying under insecure Farm Business Tenancies. The Chancellor of the Exchequer must think again.”
David Eudall, AHDB economics & analysis director, said: “The impact of the changes to inheritance tax means that from April 2026, a farm worth £2 million will have a £200,000 tax requirement to pay on the £1 million above the threshold. For every additional £1 million the farm is worth, a further £200,000 will be required to be paid in inheritance tax.”
Andrew Wilkinson, head of inheritance disputes at Lime Solicitors, said: “Today’s Budget announcements will be hard-hitting for farmers and other family businesses. The changes to agricultural property relief and business property relief were much more severe than anticipated, and with many farms and businesses worth in excess of £1m, they could be at risk of having to be sold when their current owner passes away in order for taxes to be paid. This could be devastating for families which have looked after their business for hundreds of years.
“With such a low threshold, there are significant concerns that high-net-worth individuals will sell up their land in favour of moving their investments to more lucrative and tax-efficient assets. Farmers fear that this could cause land values to dip very suddenly, putting farms into negative equity and, with the decision to bring inherited pensions into inheritance tax from 2027, could also put whole livelihoods of farming families at risk.
“While there will be a continued two-year freeze on the Inheritance Tax threshold, rising values will push more and more families into paying inheritance tax.”
Ben Taylor, senior associate and tax specialist at Roythornes Solicitors, said: “The £1m threshold for agricultural property relief (APR) and business property relief (APR) seems to be incredibly low and doesn’t equate to much in the way of farmland – probably less than 100 acres in many cases, which is not a lot of farmland by today’s standards.
“The same applies to farm machinery considering the price of, say, a new tractor or combine in today’s market. Outside of agriculture, lots of other businesses will be affected given the price of land and buildings.”
Ian Barnett, National Land Director, Leaders Romans Group (LRG), said: “The implication of the rise in Capital Gains Tax is that land sales will become less profitable to landowners because of the higher level of tax payable.
“As far as Inheritance Tax is concerned, the cost of settling an estate in probate will increase both as a result of the percentage increase in tax payable and because tax is now payable not only on monetary inheritance but on the value of land that forms part of the estate.
“In some circumstances it may become necessary, against the wishes of its owners, for inherited land to be sold, resulting in the breaking up of farms which may have been within a family for centuries. Many larger, institutional landowners will stall plans to sell land and ‘sit it out’ until a change of government and a reversal of the change.
“Others lack this flexibility and will sell despite the additional tax burden. The good news for landowners in this position is that while the tax burden has increased, so too has the likelihood of gaining planning consent.”
Agriculture budget
The good news is that the agricultural budget wasn’t cut, as had been predicted on the back of an underspend by the previous administration.
Instead, the government has announced the farming budget will remain at £2.4 billion for 2025/26, although this has not satisfied farming organisations who have been calling for an increase.
Food Security Minister Daniel Zeichner was certainly hailing the outcome as a success.
“Our commitment to farmers and the vital role they play to feed our nation remains steadfast,” he said. “That is why this Government will commit to the largest ever budget directed at sustainable food production and nature’s recovery in our country’s history, enabling us to keep momentum on the path to a more resilient and sustainable farming sector.
“ELM schemes will remain at the centre of our offer for farmers and nature, with the Sustainable Farming Incentive, Countryside Stewardship Higher Tier and Landscape Recovery all continuing. We look forward to working with farmers across the country to continue to improve and evolve our schemes and policies, to make them work for farmers and nature.”
Mr Eudall said: “The funding pot for agriculture in the UK has remained constant at £2.4 billion since the 2019-24 parliament. During this time, inflation has led to a 44% increase in farm costs while the agriculture budget remains the same.
“We are at a tipping point of how effective this budget can be in meeting the desired outcome of balancing food security, supporting farm efficiency, and delivering environmental benefits given the inflationary pressures we see.”
NFU Scotland said: “It is frustrating and disappointing, given the importance of today’s announcement to farmers and crofters, that the implications for Scotland’s agricultural budget are far from clear.
“Rather than delivering a ring-fenced, multi-annual budget from Defra’s pot, it appears that Scotland’s share of the agricultural budget has been baselined against last year and will now be included in the Scottish block grant. Going forward, it appears that the agricultural funding package may have the Barnett formula applied to it, and we are seeking urgent clarification on that.”
The government has announced that it is accelerating the end of the direct payment phaseout. The fastest reductions in subsidies will be for those who received more than £100,000 in direct payments in 2020 as these businesses will receive no more than £8,000 in 2025.
National Living Wage increase
The government has confirmed the National Living Wage increase of 6.7%, making it £12.21/hour. The National Minimum Wage for 18 to 20 year olds will increase by 16.3% to £10/hour.
Flood recovery
There is some good news within the Budget, according to the NFU, as those hit by devastating rainfall earlier this year will ‘immediately’ have access to the £60m Farm Recovery Fund, an increase of £10m.