Inheritance Tax Reform: The Hidden Costs of the 2024 Budget

Inheritance tax (IHT) has long been dismissed as an “optional tax.” For those with substantial estates and access to sound advice, it is relatively easy to avoid entirely. Assets are transferred to legal entities that cannot die, such as family companies or trusts, and as long as the person who gifted the assets survives for seven years, the entire amount becomes exempt from IHT. In addition, rollover, holdover, and incorporation reliefs ensure that these transfers remain free from capital gains tax.

Unintended Consequences

These changes to IHT are largely irrelevant for wealthy landowners and those with extensive professional support. For example, the Duke of Northumberland, whose assets are held in Northumberland Estates Ltd—a corporate entity immune to death duties—remains unscathed. Similarly, wealthy individuals such as Jeremy Clarkson and James Dyson, with paid advisers who can navigate complex trusts and other legal mechanisms, will continue to avoid IHT entirely. Instead, the burden falls disproportionately on those who lack such resources.

Ordinary farmers face a stark choice. The average farm is 88 hectares in size, and the land assets alone currently value over £2 million—well above the new Agricultural Property Relief limit.¹ Restructuring their holdings to mitigate tax would require expensive legal and financial advice. For many, such costs are prohibitive, particularly given the already precarious economics of farming, where income from food production is increasingly overshadowed by land’s value for carbon offsetting or other speculative purposes.

The True Beneficiaries of Complexity

As highlighted in recent research, farmland prices are being driven up by non-UK buyers and investment in artificial offset schemes. These schemes, often tied to carbon sequestration credits, incentivise large-scale farmland acquisitions for non-agricultural purposes. These schemes allow investors to offset their carbon emissions by investing in farmland, increasing demand and prices. Blocks of land unencumbered by residential properties are fetching record prices, with some parcels trading at £30,000 per acre or more, often to overseas buyers. This trend has made farming increasingly untenable, reducing agricultural land to a commodity in financial markets, with ten-year returns surpassing those delivered by the FTSE 100.²

The government claims these changes will promote fairness and reduce tax avoidance, but the likely outcomes are more troubling. By making tax mitigation more dependent on professional advice, the system entrenches a professional-managerial class whose livelihoods depend on navigating these labyrinthine rules. Prime Minister Keir Starmer, often perceived as a champion of this class, has perhaps inadvertently handed them a windfall. A few hundred farms a year may end up paying the tax, but tens of thousands will spend thousands of pounds each in professional fees to mitigate its effects, particularly as soaring land values drive more farms into the net. The absence of a proper impact assessment raises doubts about whether the government considered these expenses. Meanwhile, farmers unable to absorb the costs of professional advice may be forced to sell, further fuelling the speculative market for land.

A Policy Out of Touch

The broader implications of these changes reveal a government out of touch with rural realities. Land prices continue to rise, driven by non-agricultural demand and speculative investment particularly from abroad. Yet, instead of addressing these structural issues, the tax changes will likely deepen them. Far from reducing inequality or creating a level playing field, they reinforce existing disparities, benefiting those who can afford to game the system while punishing those who cannot.

Worse still, the government cannot ignore the psychological toll on those facing insurmountable tax liabilities. The prospect of losing the family farm to the taxman may be devastating for older farmers, especially those already dealing with personal loss or health struggles. With the seven-year rule no longer a viable option for those in their twilight years, some may see no way out. The impact on mental health, including an increase in suicides, is a real and chilling possibility.

Toward a Fairer System

If the aim is truly to make tax fairer, a more radical rethink is required. Simplifying the system rather than complicating it further—perhaps even replacing inheritance tax with capital gains tax—would be a start. Policies must also address the speculative forces distorting the land market, ensuring that farmland remains accessible to those who work it rather than becoming a vehicle for financial speculation.

The 2024 inheritance tax changes are a missed opportunity to create a fairer, more rational system. Instead, they deepen existing inequities, protecting wealth and privilege while leaving the vulnerable to bear the burden. It’s time for policymakers to step back and reconsider who these changes are truly serving.