UK landed estates warn Budget tax changes will ‘kill off’ business

Stay informed with free updates

Simply sign up to the UK tax myFT Digest — delivered directly to your inbox.

Owners of some of the UK’s historic houses and landed estates have warned that tax changes in Rachel Reeves’ Budget will “kill off” the farming and heritage businesses they run.

In her first fiscal event last week, the chancellor increased the rate and cut the threshold of employers’ national insurance contributions.

She also reformed agricultural property relief (APR) and business property relief (BPR), which means estates, previously exempt, will pay inheritance tax at 20 per cent on assets above £1mn from April 2026.

Edward Stanley, 19th Earl of Derby, who lives in Knowsley Hall, a stately home near Liverpool in the north-west of England, said the measures announced by Reeves would affect him both as an employer and an owner.

“Taking 20 per cent of a business away every generation is just a shockingly awful concept for a government that wants growth,” he said.

Knowsley Hall, which the Stanley family has owned since 1385, can be rented for holidays, weddings and filming; the ancestral home also has a 550-acre safari with rhinos and baboons and a stud for boarding racehorses.

“It’s going to kill off farming businesses and heritage businesses,” said Stanley, adding that heirs would be faced with the choice of selling land, which would make farms less viable, or the house and its contents.

Stanley cited Treasury figures showing the APR and BPR changes would bring in “peanuts” — about £500mn each year from 2027-28 to 2029-30 — compared with the NI changes, which are forecast to raise £24.2bn-£25.7bn each year over the same period.

England’s heritage sector contributed £44.9bn in gross value added to the UK economy in 2022 and supported the employment of more than 523,000 workers, according to analysis of data from the Office for National Statistics by consultancy Cebr.

James Hervey-Bathurst, who inherited Eastnor Castle in Herefordshire, near the Welsh border, from his mother in 1988, said his family would “be having to allocate cash to pay tax which would otherwise go into the business” in anticipation of inheritance tax.

Hervey-Bathurst opens Eastnor, which was built in 1812, for weddings, filming and corporate hire.

“What the government should recognise is that we pay a lot of tax as we go along,” such as NI and VAT, he added. “These are all things that 50 years ago houses were not producing because they had not gone down the business route but now they all have.”

Historic Houses, which represents more than 1,000 independently owned and operated houses, castles and gardens in the UK, said its members were in effect “rural small- and medium-sized enterprises” that were “often asset rich but cash poor”.

“The proposed changes to APR and BPR, introduced with relatively little notice, will play havoc with existing succession plans,” it added.

Lawyers have suggested there are ways to mitigate the inheritance tax, such as gifting the estate to the next generation or taking out a life insurance policy to cover the sum.

Michael Parkinson, consultant at law firm Payne Hicks Beach, said: “There is a little bit of hysteria going round at the moment” concerning APR. “Even once the rules have changed there will be still be plenty of scope for lifetime planning.”

But Hervey-Bathurst said there was “no way” his life insurance would cover inheritance tax at 20 per cent, meaning his family would have to “liquidate some of the assets”.

Richard King, partner at farming consultancy The Andersons Centre, said “mega-estates will get caught” by Reeves’ tax changes. Unlike investor-landowners, who contract out the land to farmers or for environmental schemes such as tree-planting, large estate owners are not able to jump in and out the same way. “They are not going to divest their agricultural land, it’s part of their inheritance,” he said.

The Treasury said farm-owning couples could pass on up to £3mn without paying any inheritance tax and that 40 per cent of APR went to “the 7 per cent wealthiest claimants [so] we made a difficult decision to ensure the relief is fiscally sustainable”. 

Additional reporting by Madeleine Speed