Tax changes could prove a death sentence for many small and medium-sized farms, CLA warns

Despite government assurances that small farms won’t be affected, the CLA has revealed that its analysis shows tax changes could prove a death sentence for many small and medium-sized farms.

According to the CLA’s analysis of model arable farms, a typical 200-acre farm owned by an individual with an expected annual profit of £27,300 would face an IHT liability of £435,000. 

If spread over a period of ten years, this would require the farm to allocate 159 per cent of its profit each year to cover the tax bill. To meet this bill, successors could be compelled to sell 20 per cent of their land.

Similarly, a 250-acre arable farm owned between a couple in the way the Chancellor expects to be possible with an expected annual profit of £34,130 would face an IHT liability of £267,000, amounting to 78 per cent of its profit each year over a decade.

Sophie Dwerryhouse, Regional Director for the Country Land and Business Association (CLA) Midlands, said: “Either the government isn’t being honest with the public about the true impact of these reforms, or they don’t understand the nature of rural businesses. 

"I'd like to believe it is the latter and that they are prepared to listen to our input rather than continually trying to dismiss it.

 “While they frame this as a tax on the wealthy, the reality is that ordinary family farms will be hit just as hard. 

"Asking farms to use their income to pay a huge capital tax bill over ten years, if indeed it is possible, will threaten the future of investment and the viability of the business.”

 From April 2026, Agricultural Property Relief (APR) and Business Property Relief (BPR) will be capped at £1m in total per owner. Qualifying assets beyond this level will receive 50 per cent relief from inheritance tax, resulting in an effective tax rate of 20 per cent, after using the nil rate band of £325,000 and residence nil rate band of £175,000.

If a farmer is married, his or her spouse would be able to benefit from their relief when passing their business assets to the successor but, according to the CLA, even farms owned by two people will be severely affected.

The CLA’s model says family-run farms – typically asset-rich but cash-poor – would be forced at best into a cycle of stagnation, asset sales, or debt to cover this tax burden, threatening the long-term viability of the UK’s rural landscape and food security.