Carmichael calls for farm inheritance tax impact assessment to be published

Orkney and Shetland MP, Alistair Carmichael, has today in Parliament warned that improvements to the government’s policy on farm inheritance tax do not go far enough, and called for an impact assessment of the changes to be made public.

Ministers announced before Christmas that the government will increase the inheritance tax threshold for Agricultural and Business Property Reliefs threshold will be increased from £1m to £2.5m when it is introduced in April 2026. This allows spouses or civil partners to pass on up to £5m in qualifying agricultural or business assets between them before paying inheritance tax, on top of existing allowances, though single farmers will only be able to make use of the lower threshold.

Mr Carmichael is Chair of the House of Commons Environment, Food and Rural Affairs Select Committee, which last year released a unanimous report calling for the farm tax changes to be paused and reviewed.

Speaking in the House, Mr Carmichael said:

“I welcome this announcement and I pay the warmest possible tribute to the farming unions and others whose tireless campaigning since the Budget of 2024 has made this happen. These changes do make this policy better but that is not the same as saying that they make it good. It is surely bizarre that in 2025 you can have two farms, both valued at £5m, but one of them passes free of inheritance tax whereas the other has an inheritance tax bill of half a million pounds.

“Surely the government now has to come forward and publish the impact assessment that presumably have done so that we can all see the reasons for this change, so that we might have some confidence that they have got the figures right this time?”

Responding for the government, Exchequer Secretary to the Treasury Dan Tomlinson MP said:

“The figures that the government has published with this change are drawn from actual claims and engagement with HMRC, and that analysis shows that before this change it would have been up to 275 estates affected per year, and now that number is forecast to half, to around 185. That means that around 85% of all estates claiming APR, some with BPR, will now not be paying any additional tax – so I do stand by those figures.

“On the point he raises around [differing tax bills], I think he’s referring to the fact that if you’re a couple, then you can get up to £5m [tax free] and if you’re single then it is £2.5m. That is a long-standing position that means that the inheritance tax nil rate band and the residence nil rate band are only transferable between spouses and civil partners. Making any unused allowance transferable in the same way is consistent with that long-standing approach.”

Reacting after the exchange, Mr Carmichael said:

“The changes to farm inheritance tax announced before Christmas are a real step forward but they have also left many questions unanswered – not just over the disparity in tax for single farmers but also over the harsh terms of the anti-forestalling clause.

“The right approach for the government going forward surely is to engage properly with the farming community to reach a truly equitable outcome. We all want a fair tax system and one which encourages family farming for generations to come – but we are some ways away from that outcome yet.”