Tyrone countryside. Picture: Cliff Donaldson
Commodity watch by UFU policy officer Daniel Toft
Note: This piece does not set out the opinion of the UFU on any proposals, but states the facts of the August 2025 CenTax Policy Report, which can be read in full here.
The Centre for the Analysis of Taxation (CenTax) has published its independent study of the Government’s planned inheritance tax reforms. The report offers insights into how people will be affected by the proposed changes. However, its most valuable contribution is in the alternatives it outlines.
The current proposals
Under the current proposals, which were announced in the 2024 Autumn Budget and outlined in the draft Finance Bill regulations, the first £1 million of agricultural and business property per estate will receive 100% relief, but any qualifying assets above that threshold will receive 50% relief. This effectively imposes a 20% tax charge on farmland and farm assets that previously escaped taxation. CenTax finds that between 480 and 600 farm estates would be impacted by the current reforms, not accounting for behaviour change.
Report analysis
Analysis shows that the largest estates will shoulder the bulk of the tax burden. 80% of the additional tax will be paid by estates worth over £5 million, and more than half will come from those valued over £10 million. By contrast, overall, estates below £2 million will contribute less than 1% of the additional tax. CenTax finds that most farms will not need to sell land to meet these new obligations, as the majority of impacted estates have sufficient non-farm assets to cover the bill. However, the report does identify around 70 estates per year that would struggle to do so, with 40 of these facing tax instalments, payable yearly under the Government’s 10 year interest-free option for payment, that would take up more than 20% of farm income. The report defines “farm estates” as where the deceased owned some agricultural property or farm business assets that could potentially qualify Agricultural or Business Property Relief, so the category covers owner-occupiers but also landlords, tenants, and investors.
Alternative approaches
CenTax makes a contribution in its exploration of alternative approaches that would further protect farm families, whilst also being cost neutral to the Government, and targeting the tax at the wealthiest investors. It seeks to ensure the alternative proposals are both politically and bureaucratically feasible, meaning that they can be implemented before April 2026 and without any new legislation.
1. ‘The Clawback’
The first alternative is the “clawback” model, which has been widely promoted by industry in Great Britain, including the NFU. Under clawback, relief would continue at 100% but would be withdrawn if farmland or business assets were sold within seven years of inheritance. This approach is attractive to many farm families as it appears to protect succession whilst discouraging speculative investors. However, CenTax argues that the clawback would not meet the Government’s objective of reducing the concentration of relief given the wealthiest estates could simply hold the assets for an additional seven years and be granted the relief. Further, their estimates suggest that the proposal would not generate comparable revenue to the existing proposals and would be impossible to implement by April 2026 given the complexity of monitoring the disposal of assets over a seven year timescale. In sum, CenTax ruled this out as a viable alternative.
2. The ‘Minimum Share Rule’
The second alternative, and one which the report advocates, is a “minimum share rule”. This would restrict relief to estates where farm and business assets make up at least 60% of the total estate value. This measure would remove relief from passive investors and estates which use farmland largely as a tax shelter. Importantly, it could also allow the Government to raise the full-relief threshold from £1 million to £5 million to provide greater protection to farm families while being cost neutral for the Government. The drawback is that this rule may slightly increase the concentration of the relief among larger estates, and the choice of a 60% threshold creates a sharp boundary that may disadvantage a number of mixed farm businesses. CenTax has found that whilst this may be deliverable by April 2026, it likely requires some “design compromises”.
3. Upper limit on relief
A third proposal is an upper limit on relief. Here, all relief would be capped at £10 million overall for qualifying property, with no further relief available above this limit. This would reduce the concentration of the relief at the top. At the same time, the cap would create the fiscal space for the Government to increase the 100% relief allowance to £2 million, doubling the existing proposed ‘protection’ for farms and businesses. They find that this approach is administratively straightforward and can be delivered within the existing timetable.
4. Transferrable allowance
Finally, the report turns to the question of whether the new combined allowance should be transferable between spouses. Under the current plan, the combined APR/BPR allowance is not transferable between spouses or civil partners, with any unused amount on the first death not able to be carried over. CenTax recommends that the combined allowance be made transferable, as is already the case for the standard nil rate band and the residential nil rate band of inheritance tax. In the long run, this change would only carry a small cost for the Government while significantly reducing unnecessary tax planning. In the short run, if applied retrospectively to widows whose spouse has already died, it would be more expensive.
Regardless of your views on the alternative proposals, the CenTax report makes clear that there are credible, cost-neutral alternatives to the Government’s current plan.
