Assessing the impact of the Autumn Budget 2024 on UK farms.
Assessing the impact of the Autumn Budget 2024 on UK farms.
Introduction.
The Labour Government's Autumn Budget 2024 has introduced significant changes affecting the agricultural sector, from inheritance tax adjustments to increased operational costs due to minimum wage and National Insurance updates.
While the government argues these changes will increase tax fairness and revenue, farmers warn they may place unsustainable financial pressures on an industry already operating on slim margins.
This article considers the budget's impact on farms from the perspective of inheritance tax adjustments and operational cost increases to review the challenges and opportunities presented by these new measures.
Putting the average farm size, land value and overall farm valuations in context.
Understanding the scale of farm operations, land values, and overall farm valuations is crucial to contextualising the impact of recent inheritance tax changes.
What is the average size of a farm in England?
The average farm size in England is around 217 acres, with significant regional variations. For example, the North East has the largest average farm size at 358 acres, while the West Midlands has the smallest at 165 acres. In Kent, the average farm size is approximately 143 acres.
Regarding land values, prices can vary based on land quality, location, and market demand. In 2024, the average cost of arable farmland in England was around £11,000 per acre. This price increase reflects the recent high demand for agricultural land, though it varies regionally based on soil quality, access, and location.
With the average farm spanning 217 acres, the value of an average-sized arable farm in England would be around £2.4 million. Pasture land, priced slightly lower at around £8,000 per acre, brings the average value of pasture farms to approximately £1.7 million.
For an arable farm to be independently financially viable and to cover the costs of the necessary machinery, about 500 acres of productive land is generally considered the minimum landholding. This scale allows the farm to offset substantial machinery costs such as tractors, processing equipment and other machinery. Therefore, at an average land price of £11,000 per acre, a 500-acre arable farm in England would be valued at around £5.5 million.
How much revenue does a farm generate?
Annual revenue per acre can range between £500–£800. With the theoretical 500-acre farm in mind, it would likely generate a gross income of between £250,000 and £400,000. While this acreage can sustain day-to-day operations, the high capital costs involved mean profitability remains narrow.
What is farm worth?
While the land value is a significant component of a farm’s total value, the true value includes far more than just acreage. A fully operational farm's valuation needs to encompass:
Farmhouse and residential buildings: Homes on the farm add significant value, especially given rural property demand. This will often also include farm cottages for employees.
Outbuildings and infrastructure: Barns, storage sheds, grain silos, and other structures critical to farm operations can substantially increase the property's worth.
Machinery and equipment: Combines, tractors, seed drills, and other machinery required for large-scale farming can collectively be valued at over £1 million.
Livestock, feed, and seed: Any livestock, along with current stocks of feed, seed, and fertiliser, contribute to the farm's operational and saleable value.
Crops in the ground: Growing crops have their own value, representing future income potential and contributing to the farm's sale price.
These assets collectively mean that the overall value of a theoretical 500-acre arable farm is likely to be well above the land's estimated value of £5.5 million. Including these essential assets highlights the considerable upfront investment needed for a fully functional farm and underscores the potential financial burden of inheriting and maintaining agricultural operations under new tax regulations.
What are the key changes to inheritance tax for agricultural estates?
The budget has introduced a £1 million cap on Agricultural Property Relief (APR) and Business Property Relief (BPR) for inheritance tax purposes (page 128, paragraph 5.54 of the Budget PDF), from 6th April 2026. Under the new rules, 100% relief will apply only to the first £1 million in qualifying agricultural and business property per person owning the asset, with relief reduced to 50% on values exceeding this threshold. This means that there is a potential for up to £2,000,000 of APR where a married couple owns the farm (while both are alive).
The government asserts that this measure will mainly affect larger, wealthier estates, limiting the potential misuse of IHT reliefs by high-net-worth individuals (page 129, paragraph 5.56 of the budget PDF). However, the CLA (Country Land and Business Association) estimates that this change could impact up to 7,000 farm businesses, representing approximately 65% of all farms in the UK.
This discrepancy between government expectations and industry estimates has heightened concerns among farmers, particularly those with mid-sized farms that could now face significantly higher tax liabilities, potentially threatening their operations.
What are the concerns of the farming community?
Many farmers see the £1 million APR threshold (£2m where the business is owned by a married couple) as insufficient, given the high land values and operational costs associated with modern farming. For example, we have previously theorised that a 500-acre arable farm in a high-demand area like the Home Counties could easily exceed £5 million, especially when accounting for machinery, livestock, and buildings. In such cases, a substantial portion of the estate would be subject to a 50% IHT rate, potentially resulting in tax bills that the farm's income cannot support.
The recent reforms to Agricultural Property Relief (APR) and Business Property Relief (BPR) may have significant implications for the inheritance tax (IHT) liabilities of farming estates. Under the new rules, effective from 6th of April 2026, the first £1 million of combined agricultural and business assets will continue attracting 100% relief from IHT (£2 million where the asset is owned by a married couple). Assets exceeding this threshold will receive a reduced relief of 50%, resulting in a 20% IHT rate on the excess value, as opposed to the standard 40% rate (GOV.UK).
A worked example of the new IHT rules for farms.
To illustrate the effect of the new IHT rules, we can consider a farming estate with the following assets:
Land: 500 acres valued at £11,000 per acre, totalling £5,500,000.
Farmhouse: Valued at £1,000,000.
Other Assets: Including barns, equipment, machinery, and stock, valued at £1,000,000.
Total Estate Value: £7,500,000.
Assumptions: The Estate qualifies for APR and BPR, the Estate is left to children, allowing the use of the residence nil-rate band and a married couple owns the farm.
Step 1: Apply the combined nil-rate bands for a married couple.
For a married couple, the following combined nil-rate bands apply:
Basic Nil-Rate Band: £325,000 per spouse, totalling £650,000 for both.
Residence Nil-Rate Band: £175,000 per spouse when passing a primary residence to children, totalling £350,000 for both.
Total Combined Nil-Rate Band: £650,000 + £350,000 = £1 million
Estate after applying nil-rate bands: £7.5 million - £1 million = £6.5 million
Step 2: Apply Agricultural Property Relief (APR) and Business Property Relief (BPR).
Under the new rules, APR and BPR provide relief in two tiers:
100% APR/BPR on the first £2 million of qualifying agricultural/business property.
50% APR/BPR on the remaining qualifying value.
Assuming all of the £6.5 million remaining Estate qualifies for APR/BPR:
The first £2 million receives 100% relief, so no IHT is due on this portion.
The remaining £4.5 million receives 50% relief, meaning only 50% of this amount is taxable.
50% of £4.5 million = £2.25 million taxable
Step 3: Calculate Inheritance Tax (IHT) on the taxable Estate.
With £2.25 million remaining as the taxable Estate, apply the IHT rate of 40%:
IHT Due: £2.25 million x 40% = £900,000
Summary of the calculation.
Total Estate Value: £7.5 million
Less Combined Nil-Rate Bands: £1 million
Remaining Estate: £6.5 million
Less APR/BPR:
£2 million at 100% relief = £2 million tax-free
£4.5 million at 50% relief = £2.25 million taxable
Taxable Amount After APR/BPR:: £2.25 million
IHT Liability at 40%: £900,000.
However, it is important to note that when a spouse or civil partner inherits property eligible for APR, any unused part of the £1 million allowance will not be transferable between them. This means the £2 million is only available in a scenario where the couple gift the farm while still alive, in which case it will become subject to the Potentially Exempt Transfer (PET) rules.
Comparison with the previous IHT rules.
Previously, the entire Estate would have qualified for 100% APR/BPR, so no IHT would have been due on the farm's qualifying assets.
Under the new rules, the IHT liability of £900,000 clearly reflects the impact of the reduced reliefs, making tax planning essential for families inheriting large agricultural estates.
Is it still possible to pass down family farms without paying Inheritance Tax?
Under the new scheme and in the optimum scenario, a married couple may be still be able to pass down the first £3 million of a farm’s value to their children entirely free of Inheritance Tax. This situation is more likely to apply to smaller, livestock farm and could look as follows:
Land: 143 acres valued at £8,000 per acre, totalling £1,144,000.
Farmhouse: Valued at £750,000.
Other Assets: Including barns, equipment, machinery, and stock, valued at £500,000.
Total Estate Value: £2,394,000.
Assumptions: The Estate qualifies for APR and BPR, the Estate is left to children, allowing the use of the residence nil-rate band and a married couple owns the farm, allowing the use of 2x £1m of APR.
Don’t forget the 7-year rule for taper relief and spousal transfers.
Transfers between spouses and civil partners remain fully exempt from inheritance tax, meaning that any agricultural or business assets passed to a spouse or civil partner will not incur tax.
When the estate of a surviving spouse is passed on, up to £1 million can be transferred free of inheritance tax, provided the residence is left to direct descendants, such as children or grandchildren.
Additionally, any transfers made to individuals more than seven years before death are entirely outside the scope of inheritance tax. For transfers made within seven years of death, a tapering relief applies, reducing the tax rate as follows:
3 to 4 years: 16%
4 to 5 years: 12%
5 to 6 years: 8%
6 to 7 years: 4%
Support for the government's rationale.
These reforms aim to make the IHT system more equitable by ensuring that larger Estates contribute a fairer share of public finances. However, they also raise concerns about the financial sustainability of family-run farms and the potential need to sell assets to meet tax obligations.
The impact of these tax changes on generational continuity is a crucial concern. Farming is often described as a "custodial" business, passed down through generations to sustain family traditions and local food supplies.
Farmers argue that these IHT changes might force families to sell portions of their land for housing development to cover their new tax liabilities, thus disrupting generational continuity and potentially impacting rural communities dependent on family farms for employment and local commerce.
From a policy perspective, supporters argue that the new Agricultural Property Relief (APR) and Business Property Relief (BPR) thresholds are necessary to prevent high-net-worth individuals from using farmland as a tax shelter rather than for genuine agricultural production.
By limiting the maximum APR and BPR reliefs, the government aims to ensure that tax reliefs benefit active farming businesses rather than estates held for wealth preservation. This approach aligns with the broader fiscal goals of increasing revenue and distributing the tax burden more fairly across asset classes.
What are the other changes from the budget that affect farmers’ operational costs?
National Minimum Wage and National Insurance contributions.
In addition to the IHT changes, the 2024 budget includes updates to the National Minimum Wage and National Insurance contributions for employers. From April 2025, the National Minimum Wage will rise to £12.21 per hour (for anyone over age 21), reflecting an increase intended to help workers manage the rising cost of living. This change represents a significant increase in payroll expenses for agricultural businesses that rely heavily on labour.
For one large farm operator (0:29 mark), these adjustments have resulted in an additional £97,000 in annual labour costs due to wage increases and National Insurance contributions. The cumulative effect of these adjustments has led the farm to consider cutting positions to absorb costs, which could affect productivity and reduce the rural workforce.
The speaker also highlighted that, unlike other industries, farms cannot simply raise their prices in response to rising costs due to their dependence on global market prices for commodities such as wheat and livestock. This pricing constraint means that additional labour costs, while beneficial for workers, may reduce profitability and operational flexibility for UK farms.
Basic Payment Scheme (BPS) reductions and environmental costs.
These changes to National Insurance and the Minimum Wage come on top of changes to the Basic Payment Scheme (BPS), which provides direct financial support to farmers, which is also being phased out under the government's post-Brexit agricultural policy changes.
The reduction in BPS payments has already affected farm revenues, with the same farmer reporting a £200,000 decrease in support from these cuts (0:30 mark).
Combined with increased wages and National Insurance costs, these changes have created an estimated £300,000 budgetary shortfall for the farmer in question.
Additionally, the budget outlines policies encouraging farms to meet new environmental and carbon standards. While these environmental measures are essential for sustainability, they represent another area where farms face rising costs without corresponding increases in revenue. These cumulative financial pressures underscore the difficulty of balancing operational costs while maintaining profitability in a sector already vulnerable to price fluctuations and weather conditions.
What are the broader implications of the 2024 Autumn Budget for the agricultural sector?
Impact on food security and rural employment.
Farmers warn that if IHT changes and rising operational costs drive families out of farming, the UK could face reduced food security. A declining number of family farms might lead to greater corporate ownership or institutional investment, with less emphasis on local food production and community involvement. This shift could disrupt the fabric of rural economies, which rely on family-run farms for employment and local business support.
Institutional ownership and land use.
Some farmers fear that the changes might incentivise institutional buyers to acquire farmland primarily for investment, often with a focus on developing properties or generating carbon offsets (0:15 mark). Unlike family farms, which usually prioritise food production and environmental stewardship, institutional owners may repurpose land to maximise returns, potentially changing the character of rural landscapes and affecting local food supplies.
Conclusion.
The Autumn Budget 2024's changes to inheritance tax, labour costs, and agricultural subsidies represent a pivotal shift for UK farms. On one hand, the government's emphasis on fair taxation and increased revenue addresses a need to manage public finances responsibly.
On the other hand, the cumulative financial impact on farmers highlights concerns about the sustainability of family farms and the broader implications for rural communities and food security.
As the farming community responds to these challenges, their role in shaping the UK's food security, rural employment, and environmental sustainability will continue to underscore the importance of policies that balance economic fairness with the needs of agricultural communities.
If you need further information about the changes to Agricultural Property Relief, you may find these links useful:
What’s next?
With significant changes to inheritance tax (IHT) and agricultural property reliefs on the horizon, it’s more important than ever for farmers and landowners to stay informed and take control of their tax planning. The new IHT rules could have substantial implications for family-run farms and estates, affecting generational continuity and financial security. Regularly reviewing your estate plan and understanding the potential impact of these changes can make all the difference in protecting your assets for future generations.
We also invite you to book a free initial consultation with one of our experienced financial advisers. Based in Tunbridge Wells, Kent, we proudly serve clients across the UK, offering tailored advice to help you manage these complex tax landscapes and secure your family’s legacy. You can also read more about Inheritance Tax Planning in general.
Don’t forget, this article offers general financial information and should not be taken as personal advice. Remember that investments and pensions can go up and down in value, so you could get back less than you put in. Tax rules can change and will depend on your individual circumstances.