Rachel Reeves’s flawed inheritance tax for farmers demands a rethink

After revealing £40bn of tax rises on business and the better-off in last month’s Budget, Rachel Reeves could – just about – argue that “working people” had not been directly affected.

But anyone in the government who thought her decision to impose inheritance tax on some family farms would be without consequences needs to think again.

It is increasingly obvious that the chancellor was unwise to include farmers on her hit list by announcing that, from April 2026, agricultural estates worth more than £1m will face an effective 20 per cent rate of inheritance tax – half the usual 40 per cent rate.

Farmers are understandably furious about what they regard as an unfair “family farm tax” that they claim will prevent farms from being handed down to the next generation, or force farmers to sell land to pay the tax, putting food production at risk.

As with her decision to means-test the pensioners’ winter fuel allowance, Ms Reeves has discovered that her targets, and the groups that lobby on their behalf, will not accept such changes without a fight.

There are already warnings that food prices will once again increase. Louise Haigh, the transport secretary, admitted on Sunday that the government is drawing up “contingency plans” to ensure food security this winter, after threats by some farmers to withhold produce and cause shortages in supermarkets.

The National Farmers’ Union is right not to condone such a “strike”. But ministers should acknowledge the strength of feeling among farmers – as the protests planned outside parliament on Tuesday will illustrate – and think again about a policy that risks killing off swathes of rural life.

The government could and should find a better way to end a tax dodge by super-rich landowners who use agricultural property relief (APR) – which at present provides 100 per cent relief from inheritance tax – to hand down their fortunes to their children. The Treasury claims that 40 per cent of the relief currently goes to only 7 per cent of claimants – the very wealthiest.

But it is unclear how many estates would be hit by the change announced in the Budget. The Treasury puts the figure at 500 each year, and says that almost three-quarters of estates claiming APR will pay nothing in inheritance tax, while farmers point to figures suggesting that two-thirds of agricultural businesses are worth more than the £1m threshold.

Many farmers are asset-rich but cash-poor, and make only small profits. It does seem as if the Treasury did not fully think the policy through. Worryingly, the Department for the Environment and Rural Affairs (Defra) was apparently not informed of it until the night before the Budget.

Defra is looking at possible amendments to mitigate the policy, but the Treasury is refusing to budge. Sir Keir Starmer told the Welsh Labour Party conference on Saturday that he would defend the Budget “all day long”, but did not address the farm inheritance tax change directly.

Outside the event in Llandudno, angry farmers protested with banners saying “Enough is enough.” The Independent agrees with them.

At the very least, the government should exempt some older farmers – perhaps those over 70 or 75 – who might not have time to use the existing rules that allow them to avoid inheritance tax by passing on an asset seven years before their death.

Ministers should remember that other Budget measures, such as the hikes in employers’ national insurance contributions and the national minimum wage, are also likely to raise food inflation, hurting the very “working people” they want to protect.

The £560m the “family farms tax” would potentially raise is not worth the disproportionate grief – both for farming families and for the Labour Party, which might struggle to hold on to many of the 100 rural seats it won at the July election in the absence of a rethink.

In a rare policy commitment, Kemi Badenoch has vowed to reverse the tax if the Conservatives win the next election. Ms Reeves should go back to the drawing board and belatedly invite Steve Reed, the environment secretary, to the table to ensure that there is no risk to food security. That is, after all, a matter of national security – the first duty of any government.