How many farms would be affected by Budget modifications?

There has been an outcry from many farmers following the modifications to inheritance tax for farms introduced within the Budget.

From April 2026, inherited agricultural property price greater than £1m, which have been beforehand exempt, should pay inheritance tax at 20% – half the standard price.

We’ve seen a variety of claims about how many farms will be affected.

The largest estimate – 70,000 – pertains to the overall quantity that would ever be affected. But the variety of farms prone to be impacted every year is prone to be round 500.

Liberal Democrat chief Sir Ed Davey mentioned the federal government wanted to “listen to rural communities” and reverse the change, claiming it would influence round 70,000 farms.

That determine comes from the Country Land and Business Association. Its president, Victoria Vyvyan mentioned: “We estimate that capping agricultural property relief at £1m could harm 70,000 UK farms, damaging family businesses and destabilising food security.”

That’s not a determine for the variety of estates that should pay inheritance tax every year, it is an estimate of the overall variety of farms price sufficient to pay.

There are a few methods to get to that.

Yiorgos Gadanakis, affiliate professor of agricultural enterprise administration at University of Reading, Whiteknights pointed to varied sources together with Defra’s Farm Business Survey, which counsel that between about 30 and 35% of farms within the UK may be valued at over £1m.

As there are about 209,000 farm holdings within the UK, that provides an estimate of between 62,700 and 73,150.

An different manner is to have a look at the variety of farms which are larger than about 200 hectares, as a result of at common land costs that would be sufficient to imply inheritance tax was due. That determine comes out at about 70,000.

Sally Shortall, professor of rural economic system at Newcastle University, factors out they won’t be evenly distributed throughout the nation due to differing land values. “Farms in England are likely to be the hardest hit,” she mentioned.

But after all a farm will solely be affected as soon as it’s inherited, so 70,000 shouldn’t be essentially the best quantity to make use of.

Paul Johnson, the director of the Institute for Fiscal Studies (IFS), an unbiased economic system think-tank, advised 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.”

The Treasury estimates that 500 farms will be affected by the agricultural property reduction reform.

Dan Neidle, an unbiased tax knowledgeable, says the true variety of farms prone to be affected may be under 500 per yr.

There have been a complete of 462 inherited farms valued above £1m in 2021-22, in line with HM Revenue and Customs (HMRC):

• 345 valued between £1m and £2.5m
• 80 at £2.5m to £5m
• 37 above £5m

Under the brand new guidelines, these 462 farms would be affected by the 20% inheritance tax on any worth above £1m (not on the entire worth).

However, as Mr Neidle factors out, like for the remainder of the inhabitants, there isn’t a inheritance tax to be paid on the worth of property as much as £325,000, bringing the untaxed complete to £1.325m.

If a farmer is married, his or her partner would be capable of move on one other £1.325m tax free, taking the overall untaxed quantity to £2.65m.

Steve Reed, the secretary of state for the surroundings, meals and rural affairs, confirmed the “vast majority” of farmers is not going to be affected by modifications. Writing within the Telegraph, he mentioned “only the richest estates will be asked to pay”.

The chief secretary to the Treasury, Darren Jones, has mentioned that the inheritance tax exemptions at present price “about £1bn a year for taxpayers”.

Now the Treasury expects that the modifications to inheritance tax , in addition to modifications to Business Tax Relief, will elevate £230m in 2026-27, the primary yr of their introduction. This rises to £520m by the tip of the forecast in 2029-30.

But the unbiased Office for Budget Responsibility (OBR) warns that there’s excessive uncertainty round these figures.

Sam Kirkham, who specialises in agriculture at Albert Goodman accountants, says “people look at the value of farms and think the farmers must be wealthy”.

But she says if the farm passes right down to the following technology to proceed to supply meals, they by no means get to grasp that capital.

And she provides farm earnings are inadequate to satisfy the extra price of inheritance tax.

Government figures counsel that the typical return on capital for farms (which is the share return that they’re making from issues like land and equipment) is barely about 0.5%, which may be very low.