British agrifood producers have taken to Westminster to voice their despondency with key policy announcement: the introduction of inheritance tax on farmland and the freeze of sustainability grants.
Farms are currently almost entirely exempt from inheritance tax, thanks to the Agricultural Property Relief and Business Property Relief, which producers have been using to pass on their farmland assets, tax-free.
But from April 2026, the full 100% relief from inheritance tax will be restricted to the first £1m of combined agricultural and business property – with 50% relief available above this amount, reducing the tax rate to 20%.
The news has been met with animosity from farmlands, with the National Farmers Union (NFU) president Tom Bradshaw telling ministers that the current plans ‘need to be overturned, and fast’.
“Farming is one of the most capital-intensive industries per man employed; nowadays, with diminishing returns inevitably the pressure is on for holdings to get larger and more efficient and this means bigger herds that need access to more land,” said Michael Miller, Agriculture, Farms & Estates Partner at Spencer West LLP.
“[The main challenge is] where to find the 20% IHT when the return on capital is notoriously low in the industry and in many cases will not even cover the tax if spread over 10 years. Farmers therefore fear inevitably having to resort to selling some of the land, just to pay the tax.”
As for which sectors would be worst-hit, Miller told us: “Intensive pig and poultry units may have less land, but the buildings and the value of the livestock are also caught in the £1m allowance when valuing all the farming assets and calculating liability for IHT.
[With regards to dairy] I understand that even if the herd is now held within a private limited company, HMRC can look to see what assets make up the shareholding – and if agricultural in nature, then the £1m limit will apply to the individual shareholders.”
In addition, the Labour-led government also announced a freeze on 76 sustainability-linked grants ‘to prioritize funds for areas that will have the greatest benefit for food security and nature conservations’.
NFU deputy-president David Exwood called the announcement ‘confusing’. “Farmers and growers are being asked to adopt measures to improve the environment but have been left in the lurch without access to the key grant schemes which will enable them to do this,” he said.
But Defra said the demand this year had been exceptional, with more than £120m (around $152m) already paid out and more applications having been received for the standalone capital offer than during the entire 2023/24 financial year.
“This high demand for some grant items has led to spending levels that aren’t sustainable for this year. We will be giving more to capital grants this year than ever before. We are forecast to spend 49% more on capital grants this year than we paid out in 2023/24 and 125% more than in 2022/23,” Defra said.
But according to Martin Lines, CEO of the Nature Friendly Farming Network, the recent policy announcement have ‘created a catch 22 for farmers’.
“They are now caught between investing in long-term sustainability or holding back on improvements to avoid triggering future tax liabilities. In a sector that thrives on long-term planning, this kind of uncertainty could stall progress on the very climate and nature restoration goals that are vital for the future of farming and food security.
“By blending business property relief with agricultural property relief, Labour’s policy fails to account for the unique dynamics of sustainable and regenerative farming.
“The policy doesn’t provide enough clarity on how private environmental investments will be treated when it comes to inheritance tax, which complicates decision-making for farmers trying to balance sustainability with financial considerations.
“If a farmer takes money from a private company to invest in environmental improvements, such as a water company paying a farmer to rewild a river or slow floods, the land’s value could go up. This could trigger a higher inheritance tax when passed down, essentially penalising farmers for doing the right thing for the planet.
“While its intention is to foster fairness, it risks creating a culture of fear and resistance within the agricultural community — one that will be reluctant to engage in the climate transition if it feels constantly under financial pressure. This goes against the ethos of the farming and climate communities. We work better together and without collaboration there will be no solid progress towards net-zero targets.
“This is not to say that the policy should be scrapped – this will unravel other policies made in the Budget. So what should Labour do? They need to be clearer in their communication with the farming community and offer more tailored and flexible support."
For example, older farmers (those in their 70s or 80s) should be given a grace period before the inheritance tax fully kicks in in April 2026, he explained.
“This would allow them more time to organize their finances, even restructure their farm or estate to ensure they are not passing on a large amount of debt to younger family members.
“Since older farmers are the most vulnerable and likely to not have the resources to address large financial challenges, especially if they are dealing with health issues, they must be prioritized.”