How many farmers will be hit by Labour’s inheritance tax raid?

Tens of thousands of farmers will descend on Westminster in their tractors tomorrow to protest at inheritance tax changes that could see them pay death duties when they hand down their farms. The government doesn’t understand the fuss. It says they are just targeting wealthy land buyers trying to dodge tax. Meanwhile the farmers argue their way of life risks being wiped out. Who’s right?

The government says the changes ‘are expected to affect the wealthiest 500 estates each year with smaller farms not affected’ – and three-quarters of farms that currently claim reliefs would not be hit. Those figures are based on the number of claims for agricultural property relief between April 2021 and March 2022, when 462 farms worth £1 million or more claimed.

However, other estimates suggest as many as 70,000 farms could be affected. The Country Land and Business Association (CLA) and the Liberal Democrats have pushed this figure, possibly using data from Defra’s farm business survey. This suggests around a third of the 209,000 farms in the country are valued at over £1 million, hence the 70,000 figure.

What’s more, the CLA points out that an average 200-acre farm with profits of around £27,000 could face a death tax bill of £435,000. Over a decade, they say, farmers would need to allocate 159 per cent of their profits every year, and each new generation of farmers would have to sell a fifth of their land to meet this new cost. It is easy to see why farmers are so aggrieved.

That figure covers all the farms that could possibly be affected, and unless all the landowners die in the same year, the full 70,000 are not about to be taxed. However, two in five farmers are over the age of 60 so it’s not impossible that the tax ends up having to be paid quicker than the Treasury’s number crunchers suggest.

If the number of farms affected is as few as the government claims, is the tax even going to raise enough money to make it worthwhile? Treasury officials claim that, when combined with business rates relief reforms, £260 million will be raised in the first year the tax measures are introduced, eventually rising to £520 million by the time of the next election. This is some way off the £1 billion a year that chief secretary to the treasury Darren Jones says the exemption currently costs taxpayers.