Farmers’ inheritance tax creates ‘chilling effect’ on nature recovery scheme, ex-government legal adviser says

Farmers are being forced to choose between protecting the environment or their legacy by the introduction of inheritance tax, a lawyer who worked on a key green farming policy has told Sky News.

Richard Broadbent, a former lawyer at government adviser Natural England, said the government had created a “chilling effect” on nature recovery schemes by making farmers pay inheritance tax while also expecting them to give over land to create and improve natural habitats.

Chancellor Rachel Reeves announced at the October budget farmers will have to pay 20% inheritance tax on farms worth more than £1m from April 2026. All farms were previously exempt.

Those in favour of the change say it will significantly reduce the use of agricultural property for large-scale tax avoidance, ensure a closer relationship between the agricultural and market values of land, and create a greater diversity of land ownership.

But the move has been condemned by farmers who again took to Whitehall in their tractors on Monday in protest.

The Country Land and Business Association (CLA), which represents 26,000 landowners and rural business owners, said the government was “taxing the future of farming, food security, and the environment itself”.

Mr Broadbent, now an environmental lawyer at Freeth’s, worked with Natural England’s legal team on the biodiversity net gain (BNG) policy, introduced by the Conservatives, which means new property developments in England, as of February 2024, must result in more or better quality natural habitat than before development.

This mainly involves developers paying landowners, often farmers, to turn over their land to nature, which could involve establishing grassland and woodlands or creating nature habitat banks.

Agreements are made for at least 30 years and could be decades longer, as it can take that long to establish nature recovery schemes.

Farmers will ‘think twice’

Mr Broadbent said because many farmers were now considering giving parts of their land to other family members to avoid paying inheritance tax, this could have a detrimental effect on BNG.

“If you’re a farmer and thinking of parcelling up your land to various family members seeking more tax efficiencies, or if you’re worried when you die they will have to break up the farm to pay for inheritance tax, you’re going to think twice about entering into a long-term nature recovery scheme,” he said.

“You’re also getting private sector money and they’re going to want to know that you’re going to be able to adhere to the contract as well.”

He said inheritance tax and the environmental incentives were “creating a conflict which doesn’t seem very sensible”.

Read more:
Inheritance tax could affect five times more farms than Treasury says
Farmers in ‘catch-22’ as investing in environmental schemes could push up land value

Victoria Vyvyan, president of the CLA told Sky News: “The government is forcing farmers to choose between keeping their land and investing in its future. Many are thinking twice before investing in environmental work like agri-environment schemes because they might result in lower productivity. Every spare penny must be saved for the Treasury.

“The anti-growth message is clear: don’t spend, don’t invest, don’t improve – just save money to keep the farm in the family.

“The Treasury has barely accounted for the economic damage of this policy, let alone the harm to the land itself. They aren’t just taxing land values, they are taxing the future of farming, food security, and the environment itself.”

Environmental schemes could push land values up

There is also concern nature recovery schemes will increase the value of farmland, which could push farms over the inheritance tax threshold or mean families have to pay more.

“We want to be getting the best nature on our land with the investment we’re putting into it,” Mr Broadbent said.

“But if you’re a farmer you’re worried that that’s going to inflate your tax bill. Again, we’ve created a chilling effect on that.”

More intensive farming

Another worry is farmers will intensively farm the land they already have instead of purchasing more land to grow the same amount of crops or keep livestock as they do not want to push the value of their farm up.

Intensive farming has been associated with river pollution, poor animal welfare and public health concerns.

“People will want to more intensively farm to get more money out per hectare so they have the cash available when they need to,” Mr Broadbent added.

“It’s a natural response but that’s the kind of incentives it’s giving people.”

Sky News has contacted the government for a comment.