Tax expert explains how many farmers will be affected by changes to inheritance tax

Tax expert Dan Neidle has outlined how many farmers are likely to be affected by changes announced in the Budget.

From April 2026, inherited agricultural assets worth more than £1 million, which were previously exempt, will have to pay inheritance tax at 20 per cent – half the usual rate.

But there appears to be some confusion over how many farms this is likely to impact.

The Treasury says it expects 500 estates to be affected by the changes each year, given that there were a total of 462 inherited farms valued above £1 million in 2021-22, according to HM Revenue and Customs (HMRC).

Under the new rules, those 462 farms would be affected by the 20 per cent inheritance tax on any value above £1 million (not on the whole value). The normal rate of inheritance tax is 40 per cent.

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 £1.325 million.

If a farmer is married, his or her spouse would be able to pass on another £1.325 million tax-free, taking the total untaxed amount to £2.65 million.

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 £3 million.

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.”

Jack Peat

Jack is a business and economics journalist and the founder of The London Economic (TLE). He has contributed articles to VICE, Huffington Post and Independent and is a published author. Jack read History at the University of Wales, Bangor and has a Masters in Journalism from the University of Newcastle-upon-Tyne.