The East of England experiences both high land values and larger farm sizes, resulting in some of the highest IHT burdens in the country. In this region, farm owners can expect tax liabilities ranging from three to seventeen years' worth of their cash income, making estate planning crucial to avoid financial strain.
At the moment, farmland is exempt from inheritance tax under a policy called “Agricultural Property Relief” (APR). In the Budget, the Chancellor announced that she will end that exemption by restricting APR. The cut to APR will mean that from April 2026, a tax of 20% will apply to agricultural assets over £1 million.
Agricultural property relief (APR) is a type of inheritance tax relief. It reduces the amount of tax that farmers and landowners must pay when farmland is passed to the next generation. Business property relief (BPR) is similar, but for business assets that are part of the estate.
From April 2026, inheritance tax relief for business and for agricultural assets would be capped at £1mn, with a new reduced rate of 20% being charged above that (rather than the standard inheritance tax rate of 40%). The tax would be payable in instalments over 10 years interest free.
The Single Farm Payment is treated as income, subject to income tax. The taxation of other grants and payments will depend on their purpose. Subsidies paid to make up for loss of income are liable to income tax.
All income earned from your agricultural business, including sales of crops and livestock, rental income from land, and income from agricultural services, is subject to income tax. You'll need to report your income and expenses on your tax return, and pay taxes on any profits you earn.
In the UK, agricultural land is generally exempt from Council Tax. This exemption is in place to support the agricultural industry and farmers, ensuring that they are not burdened with additional costs that could impact their livelihood.
Addressing the claim in a new interview with The Times, the former Top Gear presenter said: “I never did admit why I really bought it.” The fan of game bird shooting added: “I wanted to have a shoot – I was very naive. I just thought it would be a better PR story if I said I bought it to avoid paying tax.”
How much profit do farmers make in the UK per year?
The fall in income followed exceptional highs for some farm types in 2022/23. For cereal farms, following two years of exceptional highs, Farm Business Income fell by 73% to £39,400. For general cropping farms average income was 24% lower at £95,300.
A crucial element in evaluating non-commercial activities is the "Five-Year Rule." Should farming incur losses for five consecutive years, it is presumed non-commercial. After this point, the business owner must prove genuine profit intentions.
Most agricultural products are zero-rated for VAT, e.g. milk, meat, livestock, eggs, crops. The law says some services or goods are exempt from VAT, including insurance and bank interest. Some farm income comes from subsidies and grants—this is entirely outside the scope of VAT.
“Over 80% of UK farm subsidies in 2025 will reward sustainable and environmentally friendly practices.” “By 2025, UK farmers receive payments for managing 70% of the nation's land with eco-friendly methods.”
Gifting the farm, rather than leaving it to the next generation on death, could remove the IHT liability entirely. A life insurance policy can be written to cover the potential IHT liability in the event of the death of a landowner.
Aged under 18. A prisoner, someone in detention awaiting deportation or detained under mental health legislation. Severely mentally impaired. A full-time student in higher or further education studying for more than 21 hours a week and more than 24 weeks a year.
The UK agriculture industry is made up of 209,000 farm holdings, using 17 million hectares of land (70% of the UK land total in 2023). The average UK farm size is 82 hectares. However, almost half of all farms are less than 20 hectares in size.
Most farms are exempt from Non-Domestic Rates and have never needed to pay them. Therefore, many farmers do not realise that if they change the activities on their farm in the future this could trigger a rating liability.
What are the tax-rules? On 30 October, the Chancellor announced a cap on Agricultural Property Relief (APR) and Business Property Relief (BPR), which provide inheritance tax exemptions for business and agricultural property assets.
Agricultural property is land or pasture that is used to grow crops or to rear animals intensively. It includes: Growing crops. Stud farms for breeding and rearing horses, and grazing.
Multiplied by the average acreage of UK farms which is 203 acres (82 hectares), it suggests an indicative average market value of UK farms of £2,233,000, not including the farmhouse and any other farm buildings.
🚨 According to the CLA's analysis of model arable farms, a typical 200-acre farm owned by an individual with an expected annual profit of £27,300 would face an IHT liability of £435,000. If spread over a period of 10 years, this would require the farm to allocate 159% of its profit each year to cover the tax bill.
Running a small farm in the UK can be a rewarding endeavor, but it often requires innovative thinking and diversification to make it financially sustainable.
Overall the average annual salary for people who work on farms is £25,578 – close to the national UK figure of £26,500. More than 30% earned between £20,000 and £30,000, but more than one in 10 (13%) reported they earned less than £10,000, which suggests they were either part-time or working as family labour.