Think tank proposes change to UK farm tax

Changes to the UK government’s new inheritance tax policy have been proposed by a prominent think tank to help better protect family farms.

In a new report, the Centre for the Analysis of Taxation, known as CenTax, analysed the impact of the new £1m limit on agricultural property relief (APR) and business property relief (BPR).

It found that every year between 480 to 600 “farm estates” will have to pay more inheritance tax under the changes and 43% of these estates can be deemed “small family farms”.

Under current tax arrangements, CenTax found that 32% of all estates that benefit from APR and BPR at present are “likely passive investors in farmland”.

But the new changes, which take effect from April 2026, will impact only 15 of these wealthy farmland investors every year, which equates to just 3% of all impacted farm estates.

“The reform could be better targeted at reducing the use of agricultural land as a tax shelter by estates not otherwise involved in farming,” the report states.

Proposals

To address this issue, CenTax propose that relief from inheritance tax should only be available to estates where agricultural and business assets make up at least 60% of the total estate value.

This change could allow the UK government to increase the APR/BPR allowance for all farm estates from £1m to £5m, whilst maintaining the same overall tax intake.

“This adjustment would better target estates using APR and BPR for tax planning, whilst extending protection for family farms and other businesses,” the report reads.

A second proposal from CenTax surrounds the plan for agricultural and business assets in a deceased person’s estate to have a 20% tax rate applied after the £1m APR/BPR allowance.

If this 20% tax rate was limited to first £10m of an estate, with a 40% tax rate applied thereafter, then it could allow the APR/BPR limit for all estates to be extended from £1m to £2m.

“The effect would be to extend protection for family farms and other small businesses, at the expense of larger landowners and businesses,” the report reads.

Transfers

The final proposal from CenTax is that unused relief from inheritance tax under APR and BPR should be able to be transferred between married couples.

This would bring APR and BPR in line with other existing inheritance tax reliefs and would make succession planning less complicated for many family farms.

“In the long run, the [tax] revenue cost [for the UK government] would be small and would save couples from having to engage in tax planning to fully utilise their allowances,” the report reads.