Divorced farmers clobbered by extra £100k in inheritance tax

Labour is ‘playing down’ impact of its death duty raid, experts warn

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Are you a divorced or unmarried farmer affected by the Government’s inheritance tax grab? Get in touch [email protected]
Children of unmarried farmers face paying an extra £100,000 in inheritance tax thanks to Labour’s death duty raid, analysis shows.
A £3m estate of a farm-owning married couple would incur an inheritance tax charge of £270,000 after Rachel Reeves slashed relief that previously made farmers exempt, according to accountancy firm RSM.
However, the family of a single farmer would face a £370,000 tax bill on the same estate because the deceased would not have been able to combine tax-free allowances with a spouse.
Farmers will have to pay an effective 20pc inheritance tax rate on assets over £1m from April 2026 under plans announced by the Chancellor in the Budget.
They will also receive a £325,000 tax-free allowance that all taxpayers benefit from, and a further £175,000 if they are passing on a family home to their children.
Couples who are married or in a civil partnership can combine allowances to reduce their beneficiaries’ inheritance tax bill, whereas single people cannot.
It raises the prospect of the children being forced to sell off farms if their parents had divorced or never married in order to afford the higher death duty charge.
Tom Bradshaw, president of the National Farmers’ Union (NFU), said it was “incredible” that the fate of farmers’ businesses will depend on whether they are married or not.
He added: “These businesses produce the country’s food. And all of a sudden their viability depends on the owner’s marital status, rather than the business itself. It’s so unjust.”
The Government insists that two people who jointly own a farm will be able to pass on land and property valued up to £3m tax-free. However, Ian Dyall, of wealth management firm Evelyn Partners, said this figure “played down the impact” of the inheritance tax changes as it would not apply to farm businesses owned by single or divorced farmers.
He added: “To arrive at the £3m figure, the Treasury is assuming that the farmer is able to claim two nil-rate bands of £325,000 (both his and his wife’s), two residence nil-rate bands of £175,000 and two £1m agricultural property relief bands.
“But very few people will be able to do this. Single farmers will only have one set of allowances.”
Charlotte Lanning, a solicitor at Edwards Family Law specialising in high-net-worth divorce, said single farmers would be hit harder by inheritance tax than married couples.
She added: “Arguing that inheritance tax won’t impact farms with less than £3m in assets assumes farmers are married and will be passing it down to their children. But many won’t be.
“There is a strong parallel between having to sell the farm when you die and when you get divorced. Farms are hard to split up. When where you live is part of the business you can’t untangle it easily.”
RSM’s calculations assume a farm worth £2.5m and a £500,000 home, and that 50pc of the estate is left to the surviving spouse when the first dies. The £270,000 inheritance tax bill would be levied on the death of the surviving spouse after allowances are taken into account following both deaths.
Thousands marched on Westminster this week to protest the Government’s tax raid on farmers. Labour had promised not to meddle with farmers’ ability to pass on agricultural land to the next generation tax-free.
Agricultural property relief (APR) and business property relief (ABR) will be capped at £1m. Assets above this value will be subject to inheritance tax with a 50pc relief, meaning an effective tax rate of 20pc, rather than the typical 40pc.
Agricultural land and business owners have been exempt from inheritance tax since 1984.
There is disagreement about how many farms will lose out from the inheritance tax plans. Steve Reed, the environment secretary, said “small family farms will not be affected” and that “only 500 estates” a year will pay more under the new scheme than they do today.
However, leading industry organisations have disputed this claim. The NFU highlighted that Department for Environment, Food and Rural Affairs’ (Defra) data suggested 66pc of farms could face higher bills. The Country Land and Business Association (CLA) believes 70,000 estates will be affected.
The Treasury was approached for comment.
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