Proposed Inheritance Tax Changes Could Affect Far More Farmers Than Expected, Warns Expert

Proposed changes to agricultural inheritance tax relief, dubbed the “tractor tax,” may impact five times more farmers than the government has estimated, according to the Central Association of Agricultural Valuers (CAAV). The Treasury has claimed that around 500 farmers would be affected annually by the new rules. However, CAAV secretary Jeremy Moody argues that this estimate is significantly underestimated, suggesting that the changes could actually impact as many as 2,500 farmers each year.

Moody contends that the government’s analysis fails to account for the full complexity of the farming industry, particularly overlooking farmers who only claim Business Property Relief (BPR) rather than Agricultural Property Relief (APR). This group includes farmers who own land but not the farmhouse, farming partnerships, tenant farmers who don’t own land or buildings, and farmers who hold shares in family businesses.

“They’re wrong because they’re working on an incomplete picture,” Moody said, criticizing the government’s understanding of the sector. “What they got wrong is, they didn’t know what to ask and HMRC couldn’t answer them even if they had.”

The proposed changes, due to take effect in April 2026, will reduce the amount of land and business assets eligible for 100% inheritance tax relief. Currently, farmers can claim up to 100% relief on land, buildings, operational equipment, and livestock. Under the new rules, only the first £1 million of combined land and business assets will qualify for full relief. Any amount above this threshold will be taxed at 20%—half the standard 40% inheritance tax rate.

The government has argued that the changes will still allow farmers to benefit from a nil-rate tax band of £1.5 million per individual, meaning a married couple could pass on up to £3 million in assets tax-free, including personal inheritance tax allowances. However, Moody disputes this interpretation, insisting that personal tax allowances should not be applied to business assets.

“That seems to me to be basically wrong,” Moody commented, noting that this approach could lead to the taxation of personal assets at 40%, effectively undermining the financial stability of many farmers.

The BBC Verify fact-checking service has supported the Treasury’s estimates, with the government highlighting this analysis in its public statements. However, Moody criticized both the government and the BBC for failing to fully grasp the nuances of the farming sector.

A government spokesperson reaffirmed the commitment to the agricultural industry, pointing to a £5 billion investment in the farming budget over two years. The spokesperson also reiterated the estimate that around 500 claims of Agricultural and Business Property Relief would be affected by the changes, though they acknowledged the complexities of determining inheritance tax liability across different types of farms.

Moody warned that, over time, around 75,000 farms could be impacted by the changes, urging more thorough consideration of the sector’s diverse circumstances.