The chickens have come home to roost

What do Inheritance Tax (“IHT”) changes mean for the farming community?

We are a week on from the Farmers march to Whitehall, but what is all the fuss about. Everyone should pay their fair share of tax, right?

The October Budget introduced inheritance tax from April 2026 for inherited agricultural assets worth more than £1m, making them liable to the tax at 20% - half the usual inheritance tax rate. Still a good deal for farmers compared to the Average Joe who pays 40% on assets over £325,000. Like individuals, potentially farmers have the ability to use partner’s allowances which would increase the threshold to £2m.

But farming is a tough economy and unique in its characteristics: high on regulation and legislation, at the will of increasingly adverse and variable weather patterns, only one route to market through the supermarkets (for example, 90% of farmed vegetables are bought by supermarkets) and dangerous (fatal injuries 21x higher than the average for all industries). In addition, the rampant appetite of consumers for cheaper produce leads to supermarkets seeking to drive down pricing for farmers, makes it tough for farmers to turn a profit.

Let’s not forget the pressure of ‘cheap imports’ providing a viable alternative to supermarkets too. Who would want to be a farmer? Still quite a lot based on the following statistics.

Agriculture Market Statistics (source:  ONS, September 2024)

• Agriculture contributed £13.7bn to the UK economy (0.5% GDP), employing 462,000 people (1.4% total employees).
• 209,000 farm holdings in the UK in 2024.
• Average farm size is 82 hectares although over 50% of all farms are less than 20 hectares.
• 54% of farms are owner occupied, 31% mixed tenure & 14% tenanted.
• 67% of farm owners are aged over 55 with 35% aged over 65.  Fewer than 5% of owners are less than 35 years old.

Agriculture is a relatively small part of the economy, half the size of Arts & Recreation for example, but protecting sovereign food supply chain security is very important because it ensures the public has access to safe and nutritious food and protects the UK’s economic stability.  So much so Government includes food as one of the 13 Critical National Infrastructure sectors.

Outside of the statistics, farming is also at the heart of the rural community, holding social as well as economic influence, which should not be forgotten, if unintended consequences of IHT is a breakdown of rural community.

So why is IHT a problem for farmers?

Almost two thirds of all farms are owned by individuals aged 55 or greater, inheritance tax is a looming issue for farm owners, and an imminent one. Traditionally, farms were passed through the family, maintaining supply chains for this critical national infrastructure, without the need to pay inheritance tax. Above certain thresholds, that is no longer the case.

Farmers will always look at London where political decisions are made and say those living in cities don’t understand rural communities. Ultimately, farmers are capital rich and cash flow poor. The primary asset is land, an illiquid resource that is geographically landlocked, i.e. most farms are surrounded by other farms. So if cash flow poor, how can a farmer pay the IHT?

It is either the sale of a parcel of land or sale of the farm in its totality.

Sales of farms do happen, in 2023 over 150,000 acres were marketed for sale (20% increase on 2022). Of the land marketed for sale, interestingly, 56% of land was sold to private or institutional investors, not to other farmers (Source:  Strutt & Parker). Many of these are private and institutional investors seeking to acquire a finite asset for gain, and not necessarily thinking about future food supply chain security. This increasing trend is of worrying concern as illustrated below: