The agricultural property relief row is a warning to the Treasury
The government's row with the farmers is showing no sign of going away.

A lack of clarity about the chancellor’s aims has undermined her ability to sell her Budget changes to inheritance tax on farms – and Gemma Tetlow says this common failing of tax policy making needs to be addressed
Why did Rachel Reeves announce in the Budget that in future agricultural property worth over £1 million would be subject to 20% inheritance tax? This might sound like a pedantic or unnecessary question, but the answer is crucial to understanding whether there is any merit in the lobbying against the tax. But our ability to make that judgment is hampered – as it too often is on tax policy – by the lack of clarity around the objectives.
Fairness and protecting family farms
The Treasury has justified the current agricultural property relief (that is, exempting all agricultural property from inheritance tax) as ensuring “agricultural businesses or farms do not have to be sold or broken up following the death of the owner”. 22 https://www.gov.uk/government/publications/non-structural-tax-reliefs-and-objectives
The Budget documents in October said that the new policy was “making the inheritance tax system fairer by…restricting the generosity of agricultural property relief and business property for the wealthiest estates”. 23 https://www.gov.uk/government/publications/autumn-budget-2024 In describing the precise features of the new policy, the Budget cites the importance of protecting family farms, stating that: “In addition to existing nil-rate bands and exemptions, the 100% rate of relief will continue for the first £1 million of combined agricultural and business assets to help protect family farms and businesses, and will be 50% thereafter.” In practice, couples who own a farm jointly could pass on a farm worth £3 million without paying any inheritance tax, once other allowances are factored in.
But this is not an adequate description of the objectives. If the desire was to make the inheritance tax system fair (treating different types of assets the same so that people cannot avoid the tax by holding their wealth as untaxed agricultural property), why continue to tax agricultural property at half the rate of most other assets? And why are “family farms” believed to deserve special treatment – and why only lower value ones?
There are many potential reasons (not mutually exclusive) why the chancellor might have wanted to change the tax treatment of agricultural property – but each reason has implications for the design of the tax and whether this was the right place to raise revenue.
Taxing all forms of inheritance the same
One rationale for abolishing agricultural and business property relief would be that the government should treat all forms of wealth equally for the purposes of inheritance tax. Exempting any asset inevitably creates a strong incentive for people to shift their wealth into untaxed (or less heavily taxed) forms. And it is usually the wealthiest who can take advantage of any such opportunities because they are more likely to pay for tax advice and more able to structure their assets in a tax-efficient way.
If this were the objective, the best tax design would have been to abolish agricultural and business property relief entirely.
Any special treatment for “family farms” creates significant avoidance opportunities. If the government does want to retain this distinction, it needs to assess carefully whether the problems this causes – revenue lost through tax avoidance and the increased complexity of tax rules and administration – are outweighed by the benefits. It also needs to look at other less risky ways to address whatever underlying concern is motivating the exception. Making that assessment would be much easier if the government was clearer about what it deems the benefits of exempting family farms to be. For example, if the concern is about avoiding forcing the sale of farms (as opposed to a desire not to tax them at all), would it be possible simply to give the estates longer to pay the tax liability? Do “family farms” tend to have other assets or income streams that could be used to meet the tax liability?
Prevent tax avoidance by ‘non-farmers’ and reduce the inflation of agricultural land prices
Many tax professionals seem to have interpreted the government’s intent as being to retain agricultural property relief for ‘real farmers’ while preventing ‘non-farmers’ from making use of it. If so, the announced policy seems poorly designed in at least two ways.
First, the £1 million threshold is a very blunt instrument for distinguishing between ‘real farmers’ and those engaging in tax avoidance. Plenty of ‘real’ farmers have more valuable farms, while plenty of people owning farmland worth less than £1 million appear to be engaging in tax avoidance. 24 https://taxpolicy.org.uk/2024/11/24/how-to-stop-iht-avoidance-but-protect-farmers/ Second, the design – a special threshold and a lower rate – still leaves a strong incentive to hold wealth in agricultural property.
A collateral benefit of reducing these avoidance opportunities would be that it should reduce the inflation of agricultural land prices – making land more accessible for genuine farmers. If a desire to reduce inflation of agricultural land prices were a core part of the aim, it would also make sense to address other features of the tax system that also incentivise people to buy farmland: in particular, holdover relief in capital gains tax.
Supporting domestic agriculture
Much of the public debate since the Budget has focused on concerns that the new measures could make farming in the UK even less commercially viable than it already is, with protestors saying the measure poses “existential threats” to British farming and “spells the death knell” for the industry. 25 https://www.standard.co.uk/news/london/tractor-protest-farming-westminster-london-budget-b1199034.html
But, as the Institute for Fiscal Studies has pointed out, if the prime objective is to support British agriculture, this allowance in inheritance tax seems a very complicated and poorly targeted way of achieving the aim. 26 https://ifs.org.uk/articles/inheritance-tax-and-farms-0 Why would the government only want to provide help to farms that happen to be owned and retained by the same family? And why would it want to provide more support to those that happen to change hands more often? Why not instead provide more generous subsidies to all farms?
Boosting economic growth
The government has said that its “central mission” is economic growth. 27 https://www.gov.uk/government/news/our-first-steps-for-change If that is the case, then the preferential treatment of family farms and businesses in inheritance tax potentially looks odd. This tax treatment encourages people to pass their farms and businesses on to family members, rather than selling them to someone else. There is empirical evidence that this can lead to family firms being less productive than other businesses, although the evidence is mixed. 28 See, for example, https://journals.sagepub.com/doi/10.1177/01492063241259964
Reducing the inheritance tax advantages to family farms and businesses could, therefore, have been justified on the grounds of a desire to boost economic growth by making it more likely that farms and businesses end up in the hands of those who are best able to run them profitably and supporting the consolidation of smaller farms into more efficient larger entities, as has been the trend in the agricultural sector for many years. However, the potential impact of the measures on growth was not discussed at all in the Budget documents.
Failing to be clear about the objectives makes it harder for the government to advocate for its changes
There are many reasons why the government might have wanted to change the inheritance tax treatment of agricultural and business property. But, by being vague about the objective, the Treasury has made it harder to make a positive case for the changes and has created confusion about whether the measures are well-designed and whether there are practical ways of improving the policy while retaining the core aim.
The agricultural property relief row has highlighted a long-standing problem: the Treasury’s lack of clarity about tax policy objectives risks policy being poorly designed, difficult to sell to the public, and difficult to evaluate once it is enacted. Treasury ministers and officials can and must do better.
- Topic
- Public finances
- Keywords
- Tax Budget Spending review Public spending
- Administration
- Starmer government
- Public figures
- Keir Starmer Rachel Reeves
- Publisher
- Institute for Government