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The NFU has published its own analysis on the impacts of Agricultural Property Relief (APR) reforms on commercial family farms, which it said ‘proves' why the Treasury's figures that only 27% of farms will be impacted by the relief changes, does not add up.Ìý

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Agricultural Property Relief

In the Autumn Budget, the Chancellor announced that full APR from Inheritance Tax (IHT) would come to an end from April 2026. From that date, full relief would apply up to £1 million and 50% relief thereafter, for both APR and BPR (Business Property Relief) combined. The Prime Minister, the Chancellor and the Defra Secretary have repeatedly all stated that the £1 million threshold will 'protect farm businesses and farms.'

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But the union has since worked with former Treasury and Office for Budget Responsibility economists on their own analysis, and found around '75% of commercial family farms will be above the current £1m' threshold which the Treasury has set.

Inheritance Tax changes

The report said this is because once landowner claims on blocks of bare farmland and non-commercial farms are 'removed from the evidence base used by Government,' historical claim values are adjusted to reflect current market conditions and the combined impact of claiming BPR alongside APR is considered, the proportion of farms impacted increases significantly to 75%.

The report states the latest available APR data from 2021-2022, which is where the '27%' figure from the Treasury derives from, was not a 'reliable representation of the prevailing conditions from April 2026 onwards.'

The report refers to how land prices 'have grown rapidly since 2021', bringing more farms in scope of the measure, even if price growth has 'subsequently slowed down.'Ìý

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The analysis found around '40% of those claiming APR also claim BPR. By bringing claims under both reliefs within the same £1 million threshold, the report found that was 'much more restrictive' than implied purely from APR data.Ìý

FarmingÌý

Whilst farms may have multiple owners does explain 'some of the difference between the Government's 27% and the higher proportion suggested by Defra's data on the average net worth of farms', it only goes a small way to explaining the gap.

The report states that Defra and HMRC data was 'not directly comparable', as the former showed the net worth of a single farm, while the latter showed the value of the ‘agricultural' component of a single estate that has claimed APR.Ìý

Net worth

Analysis done as part of the report found the mean net worth of a farm in 2022-23 was £2.2 million and the median was just below £1.5 million. By contrast, the mean value of an estate claiming APR in 2021-22 was £0.9 million (59% below the mean farm size) and the median was just under £0.5 million (68% smaller). The report said the fact the difference between the two metrics is 'greater at the median than the mean shows that tax claims are more heavily skewed to small land holdings.'

Defra

The report said the HMRC distribution of APR claims was 'materially above the Defra distribution of farm values for all values below £1 million and materially below it for all values above £1 million.'

The report added it is these distributions that determine the proportion of estates and the proportion of farms that are expected to become liable to IHT as result of the Autumn Budget measure.

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Ten-year payment window

The NFU analysis also found that the majority of medium-sized working farms that will be hit by the liability will ‘not be protected by the ten-year payment window', because it said the resulting payments would still be ;unmanageably large relative to the economic returns they earn.'

The report found that the majority of farms ‘do not earn enough money' to pay the potential IHT Bill, without selling off some of their land or business, which it said ‘in turn makes the farm business unviable.'

Cereals and dairy

Looking at individual sector impacts, analysis showed that the tax charge resulting from £1m threshold ‘would wipe out returns for an average cereals farm and around half of returns for average dairy farms.

The report added that considering 'typical history returns' on an average cereals farm and factoring in the reduction in direct payments, a farm making a profit of £34k will be hit with ‘ten annual IHT instalments of £53k, over 1.5 times its profits. It found even if a £2m threshold was set, the annual tax payments of £33k would equal farm profits.

'Undermine investment and innovation'

In conclusion the report said that tax would ‘undermine investment and innovation in the sector' at a time when it is needed most.

At a time when farmers must act to ‘mitigate the impacts' of the reduction in direct payments, and the inflationary pressures of high input costs, farm businesses instead are now being forced to ‘divert profits' to prepare for the future of IHT bills, while any value adding investment will ‘further increase the tax burden.'

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£1M threshold

Overall, the report concluded that the majority of estates protected by the £1m thresholds are ‘too small to be viable working farms and are likely to include a ‘high proportion of landowners letting blocks of bare farmland rather than farmers.

It found the majority of medium sized working farmers, that will be hit by the liability, will ‘not be protected by the 10 year payment window, due to the resulting payments being still ‘unmanageably large relative to the economic returns' those farms earn.