New Approach to Family Farm Inheritance Exemption

 

Proposal for Reforming Inheritance Tax Relief to Protect Family Farms and Businesses

Let’s ensure tax policy works for those who work the land—not just those who trade it.

1. Introduction

The 2024 reforms to Inheritance Tax (IHT) relief on agricultural and business property have sparked significant backlash, with critics labelling them a "family farm tax". Affected parties are now seeking judicial review, arguing that the government failed to conduct a proper consultation on the economic impact of these changes.


This proposal goes further, advocating for a clear policy distinction between true family-run farms/businesses and financialised business interests. The goal is to:

  • Eliminate IHT entirely for genuine family farms and businesses, ensuring generational continuity.

  • Apply full IHT to financialised and speculative holdings, reducing land price inflation driven by tax avoidance.

  • Introduce a state-held trust system to protect family enterprises while ensuring the state benefits from long-term asset appreciation upon exit.

  • Make the trust asset transferable to provide a market of at-cost access to land for those wishing to enter farming directly through this system.

2. The Problem: Financialisation vs. Generational Farming/Business

2.1 Agricultural Property Relief (APR) as a Loophole for Speculators

Since its introduction, APR has been exploited by financial investors—not just working farmers—to avoid IHT on land holdings. Research from the Institute for Fiscal Studies (IFS, 2021) highlights that APR has contributed to land price inflation, as investors buy agricultural land primarily for tax avoidance rather than productive use.

Result: Land prices have risen 300%+ since 1990 (DEFRA, 2023), pricing out genuine farmers.

Distortion: Productive farms struggle to expand, while financial investors benefit from tax relief without contributing to rural economies.

2.2 The Threat to Family Farms & Small Businesses

Family-run farms and businesses operate on thin margins. The Country Land and Business Association (CLA, 2023) warns that IHT liabilities force many to sell assets, fragmenting generational enterprises.

Productivity Impact: A 2022 Cambridge University study found that farms facing IHT pressures reduce reinvestment by ~15%, harming long-term output.

Policy Failure: Current rules fail to distinguish between productive family enterprises and passive asset-holders.

3. The Solution: A Two-Tier Inheritance Tax System

3.1 Zero IHT for Family Farms & Businesses via a State-Held Trust

Proposed Mechanism:

Families place farm/business assets into a state-administered trust at current market value.

No IHT is ever due on these assets while the business remains operational.

If the family later sells, they receive only the original trust value; the state captures the appreciated value (acting as deferred IHT).

If the family later sells to another party intending to run a family farm then the trust can continue in the new title, and at much reduced capital cost to the new party hence offering a much easier entry route to family farming.

Provision would be made within the trust system so that loans secured on the assets retain full value in any charge placed on them by financial interests, so that farmers and businesses are not disadvantaged in securing finance.

Benefits:

✅ Eliminates IHT burden on intergenerational transfers.

✅ Lowers land prices by removing speculative demand.

✅ Encourages productivity by freeing capital for reinvestment.

✅ Enables lower capital cost for future entrants to farming or family business

3.2 Full IHT on Financialised & Speculative Holdings

Closes the APR loophole for non-farming investors.

Reduces land inflation, making farmland more affordable for genuine farmers.

Ensures tax fairness—investors pay their share, while working families are protected.

4. Economic & Policy Justification

4.1 Reducing Land Price Inflation

Bank of England (2023) research links tax-driven land speculation to rising entry barriers for new farmers.

OECD (2022) recommends targeted relief to prevent tax policies from distorting asset markets.

4.2 Boosting Productivity

IFS (2023) modelling suggests that removing IHT pressures could increase farm investment by ~20% over a decade.

EU CAP data shows that generational farms with stable ownership have 23% higher productivity than fragmented holdings.

4.3 Long-Term Fiscal Benefit for the State

The state gains from deferred asset appreciation rather than upfront IHT.

HMRC estimates suggest that closing APR loopholes could generate £1.2bn/year in additional revenue from financialised holdings.

5. Conclusion & Call to Action

The current IHT system fails to distinguish between productive family enterprises and tax-avoidant financial investors. This proposal:

✔ Protects family farms & businesses via a perpetual IHT exemption through state trusts.

✔ Eliminates speculative land inflation by taxing financialised holdings fully.

✔ Provides a secure route for future generatios into family farming

✔ Strengthens rural economies by ensuring land remains affordable for working farmers.

Next Steps:

  • Commission an independent review (e.g., by the Office for Tax Simplification) on the fiscal impact.

  • Engage farming unions (NFU, CLA) and SME representatives to design the trust mechanism.

  • Legislate to close APR loopholes while safeguarding genuine family enterprises.

  • This is not just a tax reform—it is a pro-growth, pro-productivity policy that aligns with the government’s Levelling Up and rural economic resilience agendas.

References

Institute for Fiscal Studies (IFS). (2021). Tax Reliefs and Agricultural Land Prices.

  • DEFRA. (2023). Agricultural Land Market Trends.

  • OECD. (2022). Tax Policy and Asset Inflation.

  • Bank of England. (2023). Land Markets and Financialisation.

  • Cambridge University. (2022). Inheritance Tax and Farm Investment.

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