Farmers unable to escape Labour's inheritance tax raid despite HMRC loophole for super rich

The issue has emerged as particularly contentious following recent changes to inheritance tax rules introduced by the new Labour Government that will see farmers paying a 20 per cent levy on agricultural assets worth more than £1million from 2026.

It is understood these changes were originally intended to discourage wealthy figures, such as James Dyson and Jeremy Clarkson, from buying agricultural land to bypass inheritance tax.

This inequality between the rich and farmers comes from the "gifts with reservation' clause, which specifically impacts family farmers.

The HM Revenue and Customs (HMRC) clause dictates that if a farmer passes down their estate but continues to benefit from it - either by living on the property or using its returns for their lifestyle - they will still face IHT.

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In contrast, wealthy investors who have purchased farmland as an investment rarely live on the properties themselves.

This means they can freely transfer their agricultural assets seven years before death, successfully avoiding inheritance tax while continuing their investment strategy.

The disparity effectively locks family farmers into paying the new tax while allowing wealthy landowners to circumvent it.

Stuart Maggs, a tax lawyer at Howes Percival, warned MPs that the situation leaves family farmers with a lack of options to mitigate their IHT liability once the relief is scrapped.

"This is going to be unaffordable. Farms are going to have to sell land or sell up and it's going to happen a lot," he told the Environment, Food and Rural Affairs Committee.

He explained that the rules particularly impact families where multiple generations live on the same farm.

"If you're one of three families living on the same farm – it's paying for mum who is a widow and it's paying for the parents of the children who are coming up - then mum cant give away the farm without being taxed," Maggs said.

With farms generating only half to one per cent return, he warned the new tax burden would be impossible to meet.

The inheritance tax changes have sparked significant protests from the farming community.

Hundreds of farmers gathered in Westminster today for their second major demonstration against the new rules.

The protest, organised by Save British Farming and Kent Fairness for Farmers, will saw tractors line the streets of Parliament ahead of Prime Minister's Questions.

It follows a massive rally last month where 13,000 people demonstrated in London against the changes outlined in Rachel Reeves's Budget.

The Government maintains the changes are "fair and proportionate" and will only affect 28 per cent of farms.

Officials insist that farms with multiple owners using normal inheritance tax allowances means only estates valued at £3million will be taxed under the new scheme.

However, tax experts are urging farmers to avoid making rushed decisions in response to the changes.

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Rob Goodley, a Partner at Blick Rothenberg, emphasised that the new rules won't take effect until April 6, 2026.

"The significant change to this relief is not due to become law until April 6, 2026, giving farmers time to consult tax experts on what to do next," he said.

"We have already seen a significant backlash against the Government in relation to these changes, and the backlash will likely grow in strength in the coming weeks," Goodley added.

"That backlash could result in a change or withdrawal of the proposed changes."