Treasury claims IHT compromise ‘favours wealthiest farmers’

The Treasury has firmly rejected a proposed “clawback mechanism” aimed at alleviating the impact of inheritance tax (IHT) policy changes on agricultural estates.

The proposal, which was put forward by the NFU, the Country Land and Business Association (CLA) and others, suggested waiving IHT if inherited assets remained within the family business.

However, if the farm was sold within a set period, it would be taxed at 40%.

NFU modelling estimated that a clawback system could raise between £422m and £686m a year, surpassing the Treasury’s own projections, while safeguarding family farms and national food security.

See also: NFU’s ‘clawback’ IHT proposal to Treasury could raise £686m

However, the UK government has dismissed the proposal, claiming it would unfairly benefit the wealthiest estates and that no changes would be made to the policy.

“We are not considering a clawback policy as it would unfairly benefit the wealthiest estates, but we continue to engage regularly with the sector,” said a Treasury spokesperson.

The rejection of this idea has fuelled further frustration within the farming community, which had hoped the policy change could be amended to prevent family-owned farms from being forced to sell land to cover tax bills.

NFU president Tom Bradshaw voiced his disbelief, saying: “I don’t understand how the Treasury is still clinging to the narrative that this tax won’t devastate family farms.

“The chancellor asked for solutions and we gave her one. The clawback would ensure the tax is paid if a farm is sold, but importantly, it would allow family farms to continue producing the nation’s food.

“What is unfair is the burden this tax places on the most vulnerable – the elderly farmers who’ve worked their whole lives only to face losing their farms because they can’t afford the tax bill.”

CLA president Victoria Vyvyan expressed outrage at the dismissal, saying: “The Treasury won’t say why they’re pushing ahead with a policy that could wipe out thousands of farms.

“They won’t explain how farmers are supposed to keep land when the tax bill is bigger than a decade’s profits.”

Labour rebellion grows

About 40 Labour MPs are urging chancellor Rachel Reeves to reconsider the IHT changes, warning of serious consequences for smaller family farms.

Henry Tufnell, MP for Mid and South Pembrokeshire, who is from a farming background, has joined the chorus of opposition.

In an interview with the Farmers Weekly Podcast, he said it was clear that there had been a breakdown of trust between farmers and the government, adding that the IHT policy was causing huge anxiety for farmers.

Mr Tufnell called for constructive engagement between the government and the farming community, insisting that a sensible solution must be found.

“We need to look again at this policy and find a way through this because it’s critical for the government to achieve its growth agenda and environmental targets,” he said.

The Labour government insists that its farm IHT policy is necessary to help plug a £22bn fiscal black hole which it inherited from the previous administration.

It has repeatedly refused to amend the policy, which would see a 20% tax levy applied to inherited agricultural assets from April 2026.