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Tax experts have questioned Sir Keir Starmer’s claim that a “typical family” farm will receive a £3mn exemption from inheritance tax.
They argue the government’s figure is “misleading” because it requires farmers to meet complex conditions that include potentially splitting up a farm’s ownership when one spouse dies.
The prime minister has repeatedly used the number when defending the controversial Budget decision to impose inheritance duties on agricultural assets above £1mn, saying earlier this month that “the threshold is £3mn” in a “typical family case”.
“It’s not necessarily that the £3mn figure that’s been bandied about is wrong, it’s more that it’s misleading,” said Emma Haley, legal director at law firm Boodle Hatfield. “The difficulty is there are various traps that can limit the allowance that everyone has.”
The £3mn figure is made up of multiple elements: £1mn of agricultural property relief that comes in from April 2026; a £325,000 exemption for all categories of assets; and £175,000 for passing on a house to children or grandchildren.
This amounts to £1.5mn that can be passed by a spouse directly to their children. Both partners will need to pass this on to total a £3mn exemption.
But this means any farms owned by one person or couples who are not married or in a civil partnership could not reach the £3mn allowance.
There are other factors which make achieving a full £3mn allowance difficult too.
The residential exemption is reduced if either partner’s share of the farm is worth more than £2mn and is wiped out at £2.35mn.
For a couple to reach the £3mn allowance, the first spouse to die would have to leave £1mn of their estate to someone other than their spouse to avoid the second spouse’s estate passing £2mn.
The result is that ownership of the farms would probably have to be split up to qualify for the full relief.
“On the first death you’re going to have to make sure you pass the estate to somebody else and they will then become a joint owner with the spouse,” said Haley at Boodle Hatfield. “It becomes very messy.”
Camilla Wallace, senior partner at Wedlake Bell, said the £3mn figure was “not likely to be realistic when you drill down” and calculated that £2.65mn was a more likely amount for larger farms to be able to claim.
The Treasury declined to comment. The government has said the policy, which applies to farms worth more than £1mn, would only apply to around a quarter of commercial family farms. But the National Farmers’ Union has said the true figure is three quarters of farms.
While most of the conversation about the relief has been focused on farmers, the same will apply to business-owners as the Budget changed the rules for business property relief (BPR) in the same way as for agricultural property relief. Family farms often have to use both APR for their land and BPR for their livestock and machinery.
The Treasury estimated that the changes to APR and BPR would raise a total £1.8bn by 2029-30. Calculations by consultancy CBI Economics estimate that only £387mn of that figure would be from APR.
