British farmers could be hit with an “enormous” tax bill with a 400 per cent charge when attempting to avoid the Labour Government’s inheritance tax (IHT) raid, accountants have claimed.
During her Autumn Budget statement, Chancellor Rachel Reeves confirmed that agricultural relief for IHT would be cut which has left many farmland owners concerned about what they owe to HM Revenue and Customs (HMRC).
As of April 2026, inheritance tax relief for business and for agricultural assets will be capped at £1million, with a new reduced rate of 20 per cent being charged on the amount above that threshold.
To avoid paying this unexpected levy, farmers are predicted to pass their assets over to their children and grandchildren. However, accountants are warning that beneficiaries could see sizable capital gains tax (CGT) bills.
CGT is a levy charged on any profit someone makes when selling an asset that has increased in value over time.
The gain is taxed by HMRC, not the asset. Every Briton has a capital gains tax allowance of £3,000. Any assets passed on death get a “CGT uplift” to their market value at the date of the seller’s death.
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Farmers looking to avoid paying inheritance tax may still face a 400 per cent tax charge
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Gifting assets is a useful tool for people looking to reduce their IHT liability. This is because after a seven-year period any gifts from the estate passed over are no longer considered to be liable for tax.
Accountants are reminding beneficiaries they could still be liable to pay CGT on the profit made since buying the asset.
Currently, basic rate taxpayers pay 20 per cent any profits over the £3,000 annual allowance. In comparison, higher rate taxpayers pay 24 per cent.
It is possible for famers to defer any capital gains tax liability levied at them through “hold-over relief”.
This allows business owners to give away assets or sell them for less than their worth to help the buyer.
No CGT is paid on assets given away but may be due if an asset is sold for under its initial asking price or if there is a gain made for what was paid for it.
Tax analysts note this would help farmers avoid paying an up-front capital gains tax charge, but would likely lead to bigger bills for their children down the line.
Nimesh Shah, the CEO of accountancy firm Blick Rothenberg, broke down why an attempt by farmers to sidestep the inheritance tax raid could result in a financial “string” for future generations.
He shared: “They [farmers’ children] will face a much higher CGT bill should they decide to sell the farm in the future – this is because the capital gain is essentially deferred when you claim the holdover relief, meaning the family is storing up a future tax problem.”
To explain this predicament, Shah used the example of household that inherits a £2m farm which was originally purchased for £500,000. The tax expert claims the same family would face a £480,000 capital gains tax bill.
Notably, this household would not need to pay any capital gains tax thanks to the levy’s uplift on death if the farm was inherited on their parent’s death and then sold immediately.
Despite the uplift on death in place, accountants are urging farmers to be cautious of their unique positioning when it comes to estate planning and inheritance as existing relief may not prevent them from losing thousands of pounds.
Will Sherring, the agricultural accounts manager at Price Bailey, cites the fact that farmland is owned by families for decades which means any gifted farms are likely to be charged a sizable amount of CGT.
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Accountants are warning that farmers could be hit with a “enormous” capital gains tax bill
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“When an asset is sold at today’s market rate, and the gain is based on a valuation from 1982, the capital gains tax liability becomes enormous,” the tax expert explained.
According to Sherring, a families that inherited farmland purchased in 1982 would see the amount of CGT charged by HMRC skyrocket by 400 per cent due to “hold-over relief”.
In its previous defenses of its decision to bring farmland into the inheritance tax bracket, the Chancellor has claimed revenue generated for the Treasury will be used to prop up Britain’s public services.
GB News has contacted the Treasury for comment.
