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Tax lawyers have questioned Sir Keir Starmer’s claim that a “typical family” farm will receive a £3mn exemption from inheritance tax, calling it “misleading”.
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”.
But lawyers argue that the government’s figure requires farmers to meet complex conditions, including potentially splitting up a farm’s ownership when one spouse dies.
“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 exemption is made up of £1mn of agricultural property relief, which comes in from April 2026; a £325,000 allowance 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 would need to pass this on to reach a £3mn exemption.
However, if a farm is owned by one person or a couple that is not married or in a civil partnership, the £3mn allowance cannot be reached.
The residential exemption is also reduced if either partner’s share of the farm is worth more than £2mn, and is removed entirely at £2.35mn.
This means that 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 value of the second spouse’s estate surpassing £2mn.
The result is that farm ownership 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.
