On the 19th of November, thousands of farmers in Britain are set to demonstrate in Parliament Square in London against the removal of an inheritance tax exemption that has aided farmers to bequeath their farmlands to the next generations, alleging that this decision will jeopardise food production.
In what was called a measure to raise funding to restore public services, UK’s Finance Minister Rachel Reeves stated in October that farmers with land worth more than 1 million pounds ($1.26 million) will no longer be authorised to transfer their farms to their children tax-free after 2026. The opposition to this “tractor tax” is a fresh addition to a broader backlash against Reeves’ financial policies. Earlier, Minister Rachel Reeves raised the social security contributions of the employers to 15% to increase government revenue. A significant number of Britain’s largest companies have warned that proposed increases to employers’ social security contributions could exacerbate inflation. After the country’s firms, the Labour Party government’s desperation to increase its revenue has become a nightmare for the British farmers.
Agricultural Property Relief from Inheritance Tax and the Labour Party’s “Tractor Tax”
Flags, toy tractors, banners, and tractors are reaching London in one of the major farmer’s agitations in the United Kingdom. Several farmer protestors were seen holding posters and banners reading “Keir Starmer Farmer Harmer”. Along with more than 1800 members of the National Farmers’ Union (NFU), its president Tom Bradshaw and thousands of farmers, TV presenter and farm owner Jeremy Clarkson and other noted personalities are also joining the farmers’ protest in Westminster.
UK: An estimated 40,000 farmers are currently en route to London, furious about the government's new 20% inheritance tax on farms, which will leave countless farmers with no option but to sell their farms.
— Wide Awake Media (@wideawake_media) November 19, 2024
"Farmers will be liable for inheritance tax at 20% on farms worth more… pic.twitter.com/v7vbUaUlnO
The protesting farmers are deeply concerned and outraged over the Labour government’s revisions to the Agricultural Property Relief (APR). As the name suggests, the APR is sort of an agricultural tax inheritance relief, which allows the farmers to pass on their farmlands to their future generations with certain tax reductions.
As per the existing framework, the farmers can pass on some agricultural property free of Inheritance Tax, either during their lifetime or as part of their will. In addition to land or pasture used for growing crops or rearing animals, agricultural properties like stud farms for breeding and rearing horses and grazing, land not currently being farmed under the Habitat Scheme, land not currently being farmed under a crop rotation scheme, the value of milk quota associated with the land, some agricultural shares and securities, farm buildings, farm cottages and farmhouses are covered under agricultural properties qualified for APR.
About the period of agricultural land ownership or occupation, the rules say, “property must have been owned and occupied for agricultural purposes immediately before its transfer for: 2 years if occupied by the owner, a company controlled by them, or their spouse or civil partner, 7 years if occupied by someone else.”
Notably, the Agricultural Relief until the Labour Party’s revisions of the rules, was 100% if “the person who owned the land farmed it themselves, the land was used by someone else on a short-term grazing licence, it was let on a tenancy that began on or after 1 September 1995.”
There are certain criteria for obtaining 100% agricultural relief for the property owned before 10 March 1981. However, in other cases, the agricultural tax inheritance exemption is cut short to 50%.
Coming to the changes to the existing framework announced by the Labour government in the budget, the government said that starting on the 6th of April 2026, only the first £1 million in combined commercial and agricultural property will be eligible for the full 100% inheritance tax exemption. Also, no changes have been made to the tax exemption granted on agricultural land transfers between spouses and civil partners.
Beyond this threshold, landowners will pay inheritance tax at a reduced rate of 20% rather than the regular 40%. Unlike other types of inheritance tax, this tax can be paid in interest-free instalments over a 10-year period. The UK government says that this is in addition to all of the other spousal exemptions and nil-rate bands available to people for inheritance tax purposes. “This means that two people with farmland, depending on their circumstances, can pass on up to £3 million without paying any inheritance tax,” the government said.
Explaining the requisite behind making these changes, the Labour government said, “The latest figures show that the top 7% (the largest 117 claims) account for 40% of the total value of agricultural property relief. This costs the taxpayer £219 million. The top 2% of claims (37 claims) account for 22% of agricultural property relief, costing £119 million. It is not fair for a very small number of claimants each year to claim such a significant amount of relief, when this money could better be used to fund our public services.”
The UK government claims that these changes to the rules of agricultural relief from inheritance tax will impact only the wealthiest 500 estates each year with smaller farms not affected by the changes.
What the agitating farmers say and the Labour government’s doubling down
While the government and the tax supporters contend that imposing a 20% agricultural inheritance tax will recoup money from the wealthiest farmers or those who have bought up huge farms as investments to benefit from its increasing cost, the protesting farmers argue that nearly 60% to 75% of the working farms may face a tax imposition. Moreover, the farmers’ unions say that in contrast with the high value of farmland on paper, the profits they earn are diminutive.
The NFU president Tom Bradshaw has said that around 75% of the working farms will fall under the scope of the agricultural inheritance tax. He also called the tax imposition as a “stab in the back”. “The impact for retail prices and shelf prices is going to have to be dramatic. It’s an inflationary budget for food production and you in this group have nothing left to give. It’s been nothing but a bad Budget and I’ve never seen anything like it in my lifetime,” Bradshaw said.
“This policy has to change.”
— National Farmers' Union (@NFUtweets) November 19, 2024
NFU President Tom Bradshaw (@ProagriLtd) updates after addressing a packed room of NFU members at the first session in Church House for the NFU mass lobby.#StopTheFamilyFarmTax #BackBritishFarming pic.twitter.com/u1Uv3f5ctT
However, Prime Minister Keir Starmer remains adamant about the government’s stance that a major portion of working farms will remain unaffected by taxation. “It is very important that we support farmers,” Starmer said adding that he is “confident” when he claims that a “vast majority of farms and farmers” will stay unaffected by the revisions to the tax exemptions.
Despite the Labour government’s claim that the new reforms will only target the wealthiest estates, protesting farmers expressed concerns that the policy would jeopardise multigenerational family farms, threatening their ability to continue producing food and maintaining rural traditions. The Labour government claims that the changes to the tax exemption framework are required to fund essential public services such as the NHS and housing and that the reforms will primarily affect the richest estates, not small farmers and average-sized farms. However, the protesting farmers and their unions, such as the National Farmers’ Union, think the consequences will be far-reaching and that in addition to harming family legacies, these changes will also jeopardise the UK’s food security.
