Carmichael urges government to release farm tax analysis

Alistair Carmichael MP has warned that government changes to farm inheritance tax still fall short, urging ministers to publish the full impact assessment behind the policy amid ongoing concerns about fairness and affordability for family-run farms.

Speaking in the House of Commons on Monday 5 January, the Liberal Democrat MP for Orkney and Shetland said concessions announced before Christmas improved the policy but failed to address deep structural inequities.

From April 2026, the inheritance tax (IHT) threshold for agricultural property relief (APR) and business property relief (BPR) will rise from the planned £1m to £2.5m.

See also: Relief for farmers as IHT threshold rises to £2.5m

This means a single farmer will be able to pass on up to £2.5m in qualifying assets tax-free, while spouses or civil partners will be able to transfer allowances, passing on up to £5m without incurring the tax.

Agricultural and business assets above those thresholds will be taxed at 20%.

Alistair Carmichael © UK Parliament

Mr Carmichael, who also chairs the cross-party Environment, Food and Rural Affairs (Efra) select committee, warned that this still left single farmers at a significant disadvantage.

“These changes do make this policy better but that is not the same as saying that they make it good,” he said.

“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.”

Family farms ‘still caught out’

Liberal Democrat MP and the party’s agriculture spokesman Tim Farron warned that many hill farms would still be caught despite low incomes.

He said farms in his Cumbria constituency were “worth more than £2.5m, although their average income is less than the minimum wage”, describing the policy as “an attack on British farming and on food security”.

Responding for the Treasury, exchequer secretary Dan Tomlinson said the revised thresholds would significantly reduce tax exposure.

He said estates worth £2.5m would now face a £300,000 reduction in tax liability compared with earlier proposals, while a £5m estate would see a £600,000 reduction.

Mr Tomlinson said government analysis showed the number of estates affected each year would fall from up to 275 to around 185, meaning about 85% of estates claiming APR, some alongside BPR, would now pay no additional tax.

The Treasury estimates it will now raise £300m a year from the tax, down from £520m.

Pain, anguish and distress

Conservative former Defra secretary Victoria Atkins described the move as a “partial U-turn”, arguing many farms would still face damaging bills and calling on ministers to apologise for the “pain, anguish and distress” caused over the past 14 months.

However, Mr Carmichael pressed ministers to publish the underlying analysis.

“Surely the government now has to come forward and publish the impact assessment… so that we might have some confidence that they have got the figures right this time?”

Speaking after the debate, Mr Carmichael said the changes were “a real step forward” but warned that unresolved questions on fairness and transparency meant the policy still risked undermining family farming.