Backlash as NFU chief says Rachel Reeves’ ‘tractor tax’ will hit seven in 10 farms

Rachel Reeves claimed that ‘only a very small number of agricultural properties’ will be affected by the changes to inheritance tax, but ex-NFU boss Minette Batters said farmers are furious

Chancellor Rachel Reeves has defended her proposed reforms to inheritance tax on farms by claiming it is not ‘affordable’ keep the current system (Ben Whitley/PA) (PA Wire)

Rachel Reeves has defended her so-called tractor tax after the former chief of the National Farmers Union (NFU) said it would hit seven in 10 farms.

The chancellor claimed that “only a very small number of agricultural properties” will be affected by the changes to inheritance tax on farms, but Minette Batters said farmers are furious.

“Farmers are reeling. My phone has been buzzing constantly and they’re bewildered, angry. And I think we need a lot of clarity about how this has been put together, the impact assessment and to see if this can be changed because it will have enormous consequences,” Baroness Batters said on Sunday.

Chancellor Rachel Reeves has defended her proposed reforms to inheritance tax on farms by claiming it is not ‘affordable’ keep the current system (Ben Whitley/PA) (PA Wire)

She told Times Radio: “I think it is 70 per cent of farms that will be impacted. And the government’s currently saying that 73 per cent  won’t be. I think this is where we absolutely have to see the analysis of how they’ve done this.”

The move, unveiled in last week’s Budget, means farms worth more than £1m are now subject to 20 per cent inheritance tax.

It was quickly dubbed the tractor tax or the Old McDonald tax, with concerns that the new policy combined with other measures in the Budget will increase costs for farmers.

Farmers were already struggling because Brexit brought an end to the Common Agricultural Policy (CAP), and the new UK subsidy policies were not working.

Now they are having to take on the 6.7 per cent increase in the minimum wage and 15 per cent rise in employer national insurance contributions

Sir Keir Starmer has come under fire for the change, with critics pointing to a 2023 speech to the NFU in which he promised “a new relationship with the countryside and farmers”.

Rachel Reeves has faced a backlash from farmers (PA Archive)

He promised to provide “certainty” and “work with farmers”, insisting that he agreed “food security is national security”.

But on Sunday, Baroness Batters warned that Sir Keir’s first Budget, delivered by Ms Reeves, will do damage to the sector, saying it will be “unaffordable”.

“If you look at the government’s own farm business figures on profitability and farming, it is unaffordable. Of course, land could be sold off. But this is the key point.This has been built up. These are family farms that effectively are cash poor, they are, yes, asset rich, but they will have to sell off land,” she added.

Ms Reeves on Wednesday set out changes to agricultural property relief (APR) and business property relief (BPR) from April 2026 in a bid to raise more funds for public services.

The first £1m of combined business and agricultural assets will continue to attract no inheritance tax. But for assets over £1m, inheritance tax will apply with 50 per cent relief, at an effective rate of 20 per cent.

On Sunday Ms Reeves was played a clip of Rebecca Wilson, a fifth-generation farmer from Yorkshire, raising concerns about the changes.

Ms Wilson, appearing on the BBC’s Sunday With Laura Kuenssberg programme, said: "On paper our farm is a valuable asset. But farmers like us often work very hard for very low returns and we rarely have surplus cash in the bank.

"Even using personal allowances, the Chancellor’s proposal could hit us with a tax bill of nearly £1 million when my parents die.

"How is the Chancellor going to ensure that my generation will keep on farming in light of the changes announced in the Budget?"

Ms Reeves, appearing on the same programme, replied by offering details on APR, adding: "So you can pass on without paying any tax, for most cases, a farm worth £3 million.

"After that the tax rate for inheritance tax for agricultural property is 20% compared to 40% that everyone else pays, and you can pay that over a 10-year period interest-free."

She added: "Last year only a very small number of farms would have been paying any additional inheritance tax.

"I hope that Rebecca and her family will look through the details because, if the farm is owned by two people, you have £3 million essentially tax-free and then the tax rate is a 50% discount on everyone else and you would have 10 years to pay it.

"So only a very small number of agricultural properties will be affected, but last year the benefits of agricultural property relief, 40% of the benefit was felt by 7% of the wealthiest land owners.

"I don’t think it is affordable to carry on with a relief like that when our public finances are under so much pressure.

"And, of course, farmers as well rely on good public services, whether that’s the NHS, our roads or our schools, and that money will be put back into improving our public services and putting our public finances on a firm footing."

It came after environment secretary Steve Reed rushed to defend the policy change on Thursday, claiming the “vast majority of farmers will not be affected at all”.

He blamed “misleading headlines” for the backlash to the tax, saying “only the richest estates” will be affected.

Farmers have accused Sir Keir of lying to them to get elected. Gareth Wyn Jones, a farmer in North Wales, told The Independent: “We were lied to by Keir Starmer. There is no doubt.

“The vast majority of farms in this country are family farms and now they are going to be broken up or people will not be able to afford to stay in farming.”

His family, who have owned the farm for 375 years, could soon face the problem with his father aged 88 and uncle aged 90.

He said: “I suspect I will be the last generation to farm this land from my family now.”

Mr Wyn Jones added: “People don’t realise that most farmers effectively work well below the minimum wage because of the hours we put in. Plenty are already struggling. I don’t want to say what I think of this Budget too much because there will need to be a lot of bleeps.”

He added: “They said no tax rises on working people. Well farmers are working people.”