Budget measures will force land sales, with implications for values

There is little doubt among advisers that the proposed cut to inheritance tax (IHT) reliefs will bring more land onto the market. The question is, how much land and at what value?

The market has been hungry for land for many years, driven by the desire of farmers to scale up, and by the sale of development land and the availability of rollover relief from capital gains tax (CGT).

Being able to pass on farming assets largely IHT-free has also played its part.

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Security for lending will be reviewed if the amount of land coming onto the market to fund IHT liabilities is sufficient to wobble values.

Sam Kirkham is a partner and head of farms and estates at accountant Albert Goodman.

He points out that while it is possible to spread an IHT liability over 10 years, for businesses which could afford this cost (including the 7.5% interest currently charged by HMRC) it is likely to affect their ability to invest and therefore is damaging to economic growth.

“It will be interesting to understand the banks’ view on debt already in place on farms and how these measures will impact their appetite to lend in view of a potential future IHT liability,” he says.

The need for farms and estates to sell land or property to pay IHT threatens farming’s ability to deliver on core imperatives, says James Farrell, head of rural consultancy at Knight Frank.

These are smart food production, increased food security and better public health, also improving the nation’s carbon position through environmentally conscious land management and increasing biodiversity.

Demand for land

If there are fewer tax incentives to buy or own farmland then demand may ease in some areas, says Sam Holt, head of estates and farm agency at Strutt & Parker.

However, Richard Barnett of Cheshire based accountancy group The Rural Partnership, sees no reduction in demand.

“The increased capital gains tax rates from 20% to 24% and the reduction in the benefit of Business Asset Disposal Relief mean the benefits of rolling over a capital gain to avoid a CGT liability combined with the 20% IHT saving will certainly not dampen this market and may well lead to an increase in the demand for land,” he says.

Planner Ian Barnett at the Leaders Romans group says many larger, institutional landowners will stall plans to sell land and “sit it out” until a change of government and a reversal of the change.

“Others lack this flexibility and will sell despite the additional tax burden.”

The good news for landowners in this position is that while the tax burden has increased, so too has the likelihood of gaining planning consent, he says.

Robert Sullivan, a director of GSC Grays, says land occupation patterns could change, given that the tax advantage of agricultural property relief (APR) over business property relief (BPR) appears to have been closed. 

“Farmers will now have to think even harder than before about retiring from their own business and letting their land, since IHT relief on that land will now be restricted,” he says.

“The impact on land values will probably hinge on two factors.

“The first is whether buyers who previously prized 100% APR will find the low returns on investment unpalatable in the light of the reduced relief and start to exit the sector. 

“The second is whether supply increases as the attraction of retaining land in retirement lessens.

“One significant plus for land values is that there appears to be no removal of holdover or rollover relief [from CGT], keeping those purchasers in the market. 

Let land

“For the let sector, the supply of let land may increase, with the advantage of farming in hand now much diminished in many cases,” says Robert.

“Whether that translates to excess supply putting downward pressure on rents is a very different question, given how influential farm profitability has become on tendered rents.”

The Tenant Farmers Association (TFA) says the budget statement leaves the let sector with serious concerns about its future.

Currently, depending on the type of tenancy, landlords can achieve either 50% or 100% APR on let land.

The government needs to consider owner-occupiers and estates with long-term lettings separately, says TFA chief executive George Dunn

“The £1m tax-free exemption may help small-owner occupiers, but it will not help small tenant farmers on large estates, particularly those occupying under insecure farm business tenancies,” he says.

“We will be writing to the chancellor to argue that the 2026 legislation must include a provision to exempt land let for 10-plus years.

“Without this provision, we could see the loss of many, small family farms.”