We report on the likely effect of upcoming inheritance tax changes on farmers.
Thousands of family-run farms across the UK could be forced to sell land or shut down as a new inheritance tax on agricultural assets over £1 million comes into force in April 2026. The government’s proposed 20% levy on inherited farms is set to hit the backbone of Britain’s farming communities, with some families facing tax bills exceeding £300,000.
For many farmers, this could mean the difference between passing down their livelihood to the next generation or selling off large sections of land just to meet the tax demands. As land values rise, more farms than ever before will fall into the taxable bracket, pushing multi-generational businesses to the brink.
In light of this, lawyers at Weightmans investigated which regions are most at risk. Revealing how much will farms be forced to pay and how many years of hard work it will take just to clear the tax bill.
The Impact of the IHT on Farming Communities
Since 1992, agricultural estates have benefitted from 100% inheritance tax (IHT) relief on the agricultural value of their assets and trading property. However, this will change from 6 April 2026. Under the new rules, the full 100% IHT relief will be capped at the first £1 million of combined agricultural and business property.
While the £1 million threshold may sound high, most commercial farms in England, Scotland, and Wales already exceed this value, making the tax an unavoidable burden for thousands. According to Savills Farming Report, 27% of family sales in the UK in 2024 were due to debt and financial restructuring as politics influenced landowners to put their properties on the market, with 44% more farmland marketed than the previous five-year average.
How Many Years Will It Take for Farmers to Pay This Tax?
Farming profits vary significantly across the UK, as do land values, which are often the biggest asset in an estate. By estimating the average value of farms in each region and applying the new IHT rules, we can determine how long it would take farmers to pay off any inheritance tax. Currently, inheritance tax must be paid within six months of the estate holder's death, giving farmers very limited time to raise the necessary funds. This short timeframe highlights the importance of advance financial planning or preemptive saving to ensure the tax bill can be met without compromising the viability of the farm.
If the government's proposed inheritance tax (IHT) reforms proceed as planned, most family farms will require careful tax planning. Our analysis indicates that on the average farm, farmers could expect a tax bill of over £313,242—which would take over three years of cash income to pay back.
Years Needed to Pay Off Inheritance Tax (Based on Regional Profit Estimates)
In the UK, the average cash income for farms is £102,100 per farm. Only 41% of farms have a business income of over £50,000 or more and 17% of farms had a business income of less than zero. Inheritance Tax (IHT) can have a significant financial impact on farm owners across the UK, as while larger farms can have significantly higher tax values, this doesn’t match up with the income that these farms are making.
Land values vary widely across the country, influencing the overall value of farmland and, in turn, the inheritance tax burden. The highest land values are found in the East of England (£10,000 per acre), West Midlands (£9,750 per acre), and East Midlands (£8,900 per acre). These higher land prices lead to substantial total farm values, often exceeding £3 million, which can result in significant IHT liabilities. Conversely, areas such as the Highlands and Islands (£3,500 per acre) and South West Scotland (£3,875 per acre) have much lower land values, keeping overall farm valuations and tax burdens more manageable.
The size of farmland also plays a critical role in determining tax liabilities. In the North East, where the average farm size is 1,183 acres, total farm values reach over £10 million, leading to an IHT liability of £1.85 million. With an average farm income of £112,300, it would take an estimated 17 years of earnings to settle this tax burden. Similarly, in high-value regions like the East of England and East Midlands, farm values exceed £3 million, with tax liabilities surpassing £400,000, taking an estimated four years to pay off. This stands in stark contrast to areas such as West Scotland and the Lothians, where lower land values and smaller farm sizes mean IHT liabilities are as low as £13,600 and £25,000, respectively—amounts that could be covered within a single year’s income.
Regional differences in farmland values and inheritance tax (IHT) liabilities reveal a clear pattern, particularly across England. The East of England experiences both high land values and larger farm sizes, resulting in some of the highest IHT burdens in the country. In this region, farm owners can expect tax liabilities ranging from three to seventeen years’ worth of their cash income, making estate planning crucial to avoid financial strain.
In contrast, the South West—including areas such as Cornwall—has above-average land values but smaller farm sizes. As a result, while IHT liabilities still exist, they are significantly lower than in the East. In many cases, these tax obligations could be covered within a single year’s worth of cash income, presenting a far more manageable financial outlook for farming families in the region.
| Region | Avg. Land Value (£/acre) | Avg. Farm Size (acres) | Avg. Farm Value (£)* | IHT Liability (£) | Avg. Cash Income (£) | Years to Pay Off IHT |
|---|---|---|---|---|---|---|
| Highland and Islands | 3,500 | 444 | 1,554,000 | £110,800 | 84,600 | 1 |
| Lothians | 7,500 | 150 | 1,125,000 | £25,000 | 84,600 | 0 |
| Central Scotland | 5,375 | 373 | 2,004,875 | £200,975 | 84,600 | 2 |
| North East Scotland | 5,625 | 250 | 1,406,250 | £81,250 | 84,600 | 1 |
| Scottish Borders | 5,125 | 313 | 1,604,125 | £120,825 | 84,600 | 1 |
| South West Scotland | 3,875 | 295 | 1,143,125 | £28,625 | 84,600 | 0 |
| West Scotland | 4,000 | 267 | 1,068,000 | £13,600 | 84,600 | 0 |
| East of England | 10,000 | 307 | 3,070,000 | £414,000 | 112,300 | 4 |
| South West | 8,700 | 206 | 1,792,200 | £158,440 | 112,300 | 1 |
| South East | 8,675 | 308 | 2,671,900 | £334,380 | 112,300 | 3 |
| East Midlands | 8,900 | 361 | 3,212,900 | £442,580 | 112,300 | 4 |
| West Midlands | 9,750 | 256 | 2,496,000 | £299,200 | 112,300 | 3 |
| North East | 8,687 | 1183 | 10,276,721 | £1,855,344 | 112,300 | 17 |
| Yorkshire and Humber | 8,687 | 33 | 286,671 | n/a | 112,300 | n/a |
| North West | 8,687 | 288 | 2,501,856 | £300,371 | 112,300 | 3 |
*farm value calculated by taking total acres and total number of farms sold in UK in 2024 according to Strutt and Parker, to find average number of acres per farm. This was then multiplied by the average value per acre.
How This Could Change UK Farming Forever
This inheritance tax change doesn’t just threaten individual farms, it could reshape the UK’s agricultural landscape permanently.
Possible Consequences
- Generational farms may be forced to sell – Many farmers will have no choice but to sell land, livestock, or assets just to cover the tax.
- Farmland could fall into corporate hands – If small, family-run farms shut down, large agribusinesses or foreign investors may buy up land.
- Rural communities could suffer – A decline in family-run farms could reduce local employment and weaken rural economies.
- Food security concerns may arise – If UK farming operations shrink, the country could become more dependent on food imports.
With just two years to prepare, farmers must act now to protect their businesses and future generations.
What Can Farmers Do to Prepare?
With inheritance tax (IHT) bills potentially reaching hundreds of thousands of pounds, farm owners must take proactive legal and financial measures to protect their businesses and secure generational continuity. Failing to plan could lead to forced land sales, business closures, or unsustainable tax burdens for successors.
To mitigate financial and legal risks, farmers should consider the following key steps:
- Engage Specialist Legal and Tax Advisors Without Delay
The complexities of Agricultural Property Relief and Business Property Relief mean that not all farm assets automatically qualify for tax exemptions. Certain land uses, diversified revenue streams, and farm structures could reduce eligibility, leading to unexpected tax liabilities.
- Farm owners should seek early legal and estate planning advice to ensure APR and BPR are maximised.
- Professional valuations of agricultural assets should be conducted to determine tax exposure.
- Wills and succession plans should be regularly updated to reflect the latest tax regulations.
Failure to meet strict eligibility criteria could result in significant tax bills, even when land is intended to remain within the family.
- Structure Farm Ownership for Tax Efficiency
A well-structured farm can significantly reduce IHT liability. Farmers should explore:
- Transferring ownership gradually to heirs during their lifetime to benefit from lower tax thresholds.
- Utilising trusts to shield assets from direct IHT exposure while maintaining control.
- Reviewing business structures to determine whether partnerships or corporate ownership offer better tax efficiency.
A common pitfall is assuming that all farmland will qualify for APR—non-agricultural assets within a farm estate, such as rental properties or unused land, may still attract full IHT liability. Proper structuring ensures that only the taxable portion of the estate is exposed to IHT.
- Diversification Must Be Carefully Planned to Avoid Tax Traps
Many farms are diversifying into agri-tourism, renewable energy, and direct-to-consumer sales to bolster profits. However, not all diversified activities qualify for APR or BPR.
- Agricultural relief applies only to land and buildings used for agricultural purposes.
- Commercial diversification, such as holiday lets or retail operations, may fall outside of APR rules, increasing tax exposure.
- A blended approach to structuring business activities may allow for certain reliefs under BPR, but this must be legally structured and documented in advance.
Legal guidance is crucial to ensure that diversification strategies do not unintentionally increase IHT liability.
- Legal Advocacy and Policy Engagement
With ongoing discussions around IHT reform, farming families should engage with legal and industry bodies such as:
- The National Farmers’ Union, which is lobbying for higher APR thresholds and exemptions for working farms.
- The Country Land and Business Association, which offers guidance on tax mitigation and estate planning.
- Legal and financial advisors who specialise in agricultural tax law and inheritance planning.
Keeping up with policy changes and advocating for fairer tax treatment of farms could influence the final implementation of the 2026 tax reforms.
- Implement a Long-Term Tax Strategy
Waiting until a farm is passed down is a high-risk strategy, long-term planning can reduce tax burdens over time. Farmers should consider:
- Setting aside funds to cover anticipated IHT liabilities.
- Taking out life insurance policies specifically designed to cover inheritance tax bills.
- Gradually transferring assets to the next generation to benefit from lower annual tax allowances.
Without a proactive tax strategy, farms risk financial distress, leading to forced sales of land or assets to cover tax debts.
Naomi Woods, Partner at Weightmans comments,
“The proposed inheritance tax reforms pose a serious threat to the future of family-run farms across the UK. With many agricultural estates exceeding the £1 million threshold, these changes could leave farming families facing tax bills of up to £300,000, sums that cannot be met through annual profits alone. This risks forcing farms to sell land, and livestock, or even shut down entirely. Given the scale of the challenge, it is crucial that farmers take immediate steps to review their estate plans, explore potential tax reliefs, and consider restructuring ownership to protect their businesses for future generations. Without careful planning, this tax could accelerate the decline of traditional British farming.”
Data sets:
https://www.gov.scot/publications/scottish-farm-business-income-annual-estimates-2022-2023/
