Rachel Reeves’s planned overhaul of inheritance tax reliefs for farmers and family businesses could end up costing the Treasury nearly £2 billion by 2030, rather than raising revenue as intended, a new analysis has warned.
Reforms to Business Property Relief (BPR) and Agricultural Property Relief (APR), set to come into force in April, were projected to generate £1.8 billion by the end of the decade. However, modelling by CBI Economics, commissioned by Family Business UK, suggests the policy will backfire by reducing investment, jobs and economic growth.
Under the proposals, inherited farms and business assets worth more than £1 million will face a new 20 per cent tax charge, after decades of being largely exempt. The changes are designed to limit reliefs and align treatment with other forms of inherited wealth.
Yet the new study found that over 60 per cent of family businesses and farms plan to cut investment by more than a fifth in response to the measures. Around a quarter have already begun reducing headcount. By the end of the current Parliament, the changes could cost more than 200,000 jobs, with regions such as Yorkshire, the East of England and Northern Ireland set to be hit hardest.
Neil Davy, chief executive of Family Business UK, warned that the reforms threatened to undermine the Government’s own mission for economic growth: “Far from stimulating investment or delivering higher receipts, these changes risk serious damage to the backbone of the British economy—family businesses and farms.”
CBI Economics estimates the overall hit to GDP and employment from reduced economic activity could push the net fiscal impact of the tax changes into the red—leaving the Treasury £1.9 billion worse off by 2030.
Industry groups are urging the Treasury to delay or abandon the reforms, warning of unintended consequences across multiple sectors.
Tom Bradshaw, president of the National Farmers Union, said the report “must serve as a wake-up call” to ministers: “We face major cuts to investment and significant job losses at a time when we need to strengthen food security and support rural economies.”
Mo Metcalf-Fisher of the Countryside Alliance described the planned tax changes as “foolish and irreversible”, adding: “The damage to agriculture will be swift and far-reaching.”
The issue has sparked a growing backlash in Westminster, fuelled by concerns about the psychological toll the tax changes are already having. In one tragic case, 78-year-old John Charlesworth took his own life last year after becoming overwhelmed by fear over how the new rules might affect his family business.
The policy has also drawn sharp criticism from the Conservative Party. Shadow business secretary Andrew Griffith called the reforms “a blatant breach of election promises” and claimed they would punish entrepreneurship.
“Labour plans to steal the futures of a generation of risk-takers on the back of hooky Treasury maths,” he said. “Our first Conservative budget will reverse this damaging measure.”
The Government insists the changes are proportionate. A Treasury spokesperson said: “Three quarters of estates will still pay no inheritance tax at all. For those affected, tax rates will be halved compared to the general rate, and payments can be made over 10 years, interest-free. This is a fair and balanced approach to supporting our public services.”
The inheritance tax reforms come amid a wider debate over Labour’s fiscal strategy, including its crackdown on the UK’s non-dom tax regime. Separate analysis released this week by former Treasury economist Chris Walker suggested that at least 10 per cent of non-doms have already left the UK, with fears that further departures could erode economic growth by more than £10 billion a year.
The combined pressure of reforms to inheritance tax, capital gains, and non-dom status is now prompting questions about whether the Chancellor’s plans will deliver more revenue—or unintentionally undermine the very growth needed to fund public services.
Family Business UK said: “This is a moment for reflection. There is still time to reconsider these changes before they cause long-term harm to jobs, investment and the rural economy.”
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Labour’s farm tax reforms could cost Treasury £2bn, report warns