Property Consultancy firm, Strutt & Parker, has issued a statement detailing the implications of Labour’s budget, which was delivered by Chancellor Rachel Reeve on Wednesday, October 30, for farmers and landowners, which will increase inheritance tax (IHT) liability.
It believes that the changes to inheritance tax and the government’s decision to accelerate cuts to basic payments will result in larger farms and estates being penalised for the size and scale of their asset portfolio.
It also identified that a problem lies within the fact that farming is a “fundamentally capital-intensive business with low returns, making funding these liabilities difficult without undermining the viability of the business”.
The government has announced that from April 2026, Agricultural Property Relief (APR) and Business Property Relief (BPR) rules will be changed, so there will be 100% relief on the first £1 million of assets and then 50% relief on assets after that, equating to an effective tax rate of 20%.
Rural research director for Strutt & Parker, Dr. Jason Beedell, said: “This is the most significant change to the inheritance tax regime for a generation.
“It will be seen as a major U-turn given promises were made ahead of the election that there were no plans to change APR or BPR and Defra Minister Steve Reed also made a commitment just a couple of months ago to address low confidence and provide stability for the farming sector.
“The government has said the aim is to restrict the generosity of APR and BPR for ‘the wealthiest estates’, but the £1 million nil rate band, applied after any other general reliefs, will only enable around 100ac to be transferred free of IHT, so this will really hit working farmers and their families hard.”
He approximated that the increase in IHT liability could be around £0.5 million for the average sized farm (350ac) and round £2 million for a large farm (1,000ac).
This comes at a particularly difficult time for farming, as the sector faces increasing challenges from unpredictable climate and volatile markets.
Head of Rural for Strutt & Parker, Rhodri Thomas, said that generations of farms have long depended upon reliefs life ARP and BPR to stave off selling fragments of the land to finance IHT payments.
He forecasts an extended period of tax and business planning for farmers to reduce the impact of these changes.
He also predicts an increase in land transfers between generations prior to the death of the proprietor and the assessment of alternative business structures such as companies by farming businesses.
Strutt & Parker
Strutt & Parker’s head of Estates & Farm Agency, Sam Holt, also denoted the impact that the prospective inheritance tax changes will have on the sale of farmland, stating: “Tax is not the foremost driver of land prices, but it is an important factor.
“If farming businesses need to sell land to pay for inheritance tax liabilities, then this will bring more land to the market, and if there are fewer tax incentives to buy or own farmland, then demand may ease in some areas.”
In another financial blow to farmers, Defra has also announced a much more rapid phasing out of the de-linked BPS payments for farmers in England than was previously expected.
Head of Farming for Strutt & Parker, Jonathan Armitage, said: “Most farmers had been expecting a continuation of the existing path to a zero payment by 2028. In fact, no farmer will receive more than £7,200 from next year.
“For a farmer who received a payment of £100,000 (about 429ha) in 2020, the total payment will be more than £40,000 less over the period 2025-2027 than anticipated. This will clearly have a negative effect on farm businesses’ cash flows and profits.
“Significant differences in approach are becoming clear between the devolved administrations, as far as future farm support is concerned.”
Although the overall Defra budget is being increased in real terms over the next two years, day-to-day spending has been cut by 1.9% per year.
The Treasury has flagged that Defra is facing “significant funding pressures on flood defences and farm schemes of almost £600 million in 2024 to 2025”, according to Strutt & Parker.
It said while the government is meeting those commitments this year, it will be necessary to review these plans from 2025 – 2026 to ensure they are affordable.
It has been announced there will be an increase in employer National Insurance Contributions by 1.2% to 15%. Many land-based businesses do not employ many people, so they may find the increase in the employment allowance on employers’ contributions will cushion the increase.
However, it could affect the growth plans of bigger businesses, as it is estimated to increase the cost of hiring a new employee on an average salary by about £600.
The government has also confirmed a 6.7% rise in the National Living Wage (NLW) from April 2025, which increases the wages of a worker on this rate by around £1,400 a year.
The increase to £12.21 per hour is slightly more than the £12.10 recommended by the Low Wage Commission.
The reason for the higher increase is due to recent strong earnings growth in the economy and the policy target that the NLW does not drop below two thirds of median earnings (so NLW is now £24,700, based on the £37,430 median).
The target was finally achieved this year after almost a decade of above-inflation increases. There is a bigger increase of 18% for younger staff (18-20 years) to £10 per hour to get their rate closer to the over-21 rate, and for apprentices and 16-17 year olds to £7.55 (+18%).
The UK’s rate is now above Germany’s, below France’s and above the average of the middle 50% of OECD countries, according to the FT.
“The availability and cost of labour is a serious issue for farming across all sectors. While we support the improvement of incomes at the lower end of earnings, increases in the minimum wage combined with increases in National Insurance will do nothing to relieve this pressure,” Armitage added.
