Agricultural Property Relief and Business Property Relief

Commons Urgent Question

The following Answer to an Urgent Question was given in the House of Commons on Monday 5 January.

“I thank the shadow Secretary of State for Environment, Food and Rural Affairs for asking this Question. I wish a happy new year to her and to all Members of the House.

The reforms announced in December go further to protect more farms and businesses while maintaining the core principle that more valuable agricultural and business assets should not receive unlimited relief.

The allowance for the 100% rate of relief for agricultural property relief and business property relief will be increased from £1 million to £2.5 million when it is introduced in April. That means that a couple will now be able to pass on up to £5 million of agricultural or business assets tax-free between them, on top of the existing allowances such as the nil rate band. Taken together with the reform announced at the recent Budget, widows and widowers will benefit from up to £2.5 million of their spouse’s allowance, even if their spouse passed away many years ago.

Our changes further reduce the number of estates forecast to pay more inheritance tax, and they further reduce the liability for many of the remaining estates. Compared with Budget 2025, the number of estates claiming APR—including those also claiming BPR—affected by the reforms in the coming tax year is expected to halve, from what would have been 375 estates to just 185 estates. That means that around 85% of estates claiming agricultural property relief in 2026-27 are forecast to pay no more inheritance tax on their estates under the changes.

The Government have announced these changes after listening carefully to feedback from the farming community and family businesses, and I am pleased that the National Farmers’ Union and others have welcomed the changes. Even after the reforms, the Government expect to raise around £300 million in 2029-30 from our changes to these tax reliefs. We are making fair and responsible choices to support the farming community, with a record £11.8 billion investment in sustainable farming and food production over this Parliament, and to modernise our tax system for the future”.

My Lords, the Government quietly announced over Christmas that the agricultural and business property reliefs threshold would increase from £1 million to £2.5 million. That change is welcome but it is plainly a U-turn, following well over a year of pressure from farmers, other family businesses and the Conservative Benches. First, does the Minister accept that this cruel delay caused unnecessary anxiety and real distress for the farming community and those operating family businesses across the country? Secondly, given that the harm was clear and the opposition sustained, why did the Government wait so long to act, which maximised the damage as families took important and irreversible decisions?

I am grateful to the noble Baroness. May I first take this opportunity to wish her a belated happy birthday for the weekend just past?

I am grateful to the noble Baroness for her support for the measures that we announced shortly before Christmas. It is absolutely right that, following the reforms to the reliefs that we announced in the Budget in 2024, the Government consulted about the reforms with the farming community, as she says, and with family businesses. We have now carefully considered this feedback and have acted, and that was the right thing to do. We have acted to protect more family farms and family-owned businesses, while maintaining a core principle that more valuable agricultural and business assets should make a greater contribution.

My Lords, I recommend a carpenter’s rule to the Government: “Measure twice, cut once”. Can the Government tell us their assessment of the serious harm that was done to our vital family farming sector by the devastating mistake of their original tax policy? I am glad that they have recognised that and have at least made some change. However, would it not benefit the economy more to abandon this tax policy altogether—it will now raise next to nothing—close the tax loopholes exploited by private equity, which were never actually touched by the policy in the first place, and focus on rebuilding trust and revitalising our critical agricultural sector?

No, I do not agree with the points the noble Baroness makes. She says this will raise next to nothing; it will still raise about £300 million for our public services. I do not know whether she thinks that is next to nothing—I do not—and I do not know where she would get that money from if she wishes to cut this. There is also an important core principle that we have maintained: that more valuable agricultural and business assets should not receive unlimited relief. There is, I believe, a need to reform agricultural property relief and business property relief; I think she is saying that she does not agree with that. However, the status quo is not sustainable, because a very small number of claimants currently benefit from a very significant amount of agricultural property relief and business property relief. The top 7%, the largest 117 claims in 2021-22, accounted for 40% of the total Exchequer cost of agricultural property relief, and the top 4% of claims, the largest 158 claims, accounted for 53% of the Exchequer cost of business property relief. We are now getting the balance right between protecting those farms and those businesses, supporting the public finances and supporting our public services.

Can the noble Lord clarify how much this change will cost and how it affects the forecasts in the Budget’s EFO?

The OBR will cost it precisely in the next EFO. I believe it will now raise approximately £300 million, but the OBR will confirm that in the next round of forecasts.

My Lords, I welcome, without reservation, the change made by the Government. The Minister will be aware of the considerable concern that there was among small farmers in Wales and the impact that the uncertainty was having on their sector. In that context, can he also have a look at the threat to that sector from the uncertainty arising from the possibility of imports from Australia and the southern hemisphere, which in a few years’ time could well undermine our domestic sector?

I am grateful to the noble Lord for his support for what we have announced. I absolutely hear what he says about those trade agreements made by the previous Government and I am more than happy to look further at what he asks about.

My Lords, my noble friend on the Front Bench made it very clear that farmers had to campaign long and hard to get this necessary change, and it happened at the very last minute. A similar campaign is being waged by the hospitality industry, which faces a near doubling of its business rates over the next three years. Will the Government force it to campaign long and hard and insist on no change before they do the right thing in the end?

The previous revaluation was based on property values during the Covid pandemic. Rateable values were much lower—perhaps artificially lower—at that point. I understand that pubs and other hospitality venues, such as hotels, are now seeing increases as a result of the latest revaluation. We have provided a £4.3 billion support package. Without that, pubs would have faced a 45% increase in total bills for next year. Because of the support that we have put in place, we have got that down to 4%. However, I acknowledge that the revaluation means that pubs and others will struggle with the business rates that are applicable to them. That is why we are working with the sector and will continue to do so. We are very open to discussions with it about other measures, such as more freedom for licensing and the freedom to open for longer.

Farming is a very important part of the rural economy and the basis of the food and drink sector. The Treasury is to be congratulated on recognising the reality of asset values while maintaining the principle of inclusion for inheritance tax—that entrepreneurs more generally cannot use farmland to shelter their business assets. The emphasis must now be on rebuilding relationships with the farming sector, especially following the very poor trade deals that were done by the Conservative Governments, in which agriculture has been jeopardised in favour of industry. Can my noble friend the Minister update the House on better trade alignment with our European neighbours on standards more generally and SPS regulations in particular? I declare my interest on the register as having a farm in Cheshire.

I am grateful to my noble friend for the support that he sets out for the measures that we have announced. He is right about the importance of the farming sector to our economy and our society. The Government have allocated a record £11.8 billion to sustainable farming and food production over the course of this Parliament. That includes the largest financial investment in nature-friendly farming that has ever been seen. My noble friend is also right to point to the importance of the EU reset to the farming sector. I was very pleased to see the commitment to an SPS agreement as part of that EU reset. I assure him that the UK Government are ready to move very quickly to secure that agreement and that the negotiations are ongoing.