A “complacent approach” by the UK Government to the introduction of inheritance tax reforms affecting Welsh farms has created an unnecessary climate of uncertainty and confusion within the sector, MPs have said.
A report from the cross-party Welsh Affairs Committee, published ahead of the Budget in a fortnight’s time, calls on the UK Government to delay the implementation of its changes to Agricultural Property Relief (APR) and Business Property Relief (BPR), due to come into effect in April 2026, until a Wales-specific impact assessment has both been published and scrutinised by the Committee.
The Committee found that the absence of data concerning the number of farm estates in Wales that might attract inheritance tax created a vacuum which was filled by organisations publishing competing statistics that offered starkly different estimates of the likely impact.
The wide-ranging report cautions that the agricultural sector in Wales stands at a critical juncture. Faced with declining livestock numbers, falling incomes, international competition and mounting financial pressures, the sector is increasingly exposed to risks that threaten its long-term viability.
The Committee highlights the sector’s cultural, environmental and economic importance to Wales, but warns that the UK policy environment too often overlooks the distinct nature of Welsh farming. A greater proportion of Wales’ land area is dedicated to agriculture compared with the UK overall and there is a higher proportion of small, family-run beef and cattle farms than in England, situated in difficult areas which constrain productivity.
In a warning to the UK Government, the report concludes that a failure to account for the unique role farming plays in Wales, risks undermining the viability of rural farming communities, the Welsh language, and the future of farming in Wales.
In addition to its calls to delay inheritance tax reforms, the report makes recommendations relating to agricultural funding, the challenges and opportunities for the Welsh farming industry presented by recent trade agreements and how best to support and secure the next generation of Welsh farmers.
Ruth Jones MP, Chair of the Welsh Affairs Committee, said:
“The widespread concern caused by the manner in which a significant tax policy affecting farms in Wales was announced, with a distinct lack of information on the likely consequences in Wales, was the last thing the hard-working people in our farming communities needed at a time when they are already under heavy strain. This complacent approach by the Government is a prime example of how UK policy too often overlooks the distinct nature of the farming sector in Wales, which has its own specific economic and rich cultural characteristics.
“With the Budget coming up, the UK Government has the chance to demonstrate that it recognises the uniqueness of the sector and its importance to the culture, environment and economy of Wales, and to start building bridges with Welsh farmers. It must hit the brakes on its inheritance tax reforms so a proper comprehensive assessment can be made of the true likely impact on current and future generations living in farming communities across the country.
“Despite its resilience, Welsh farming is a critical juncture with declining livestock numbers, falling incomes, international competition and mounting financial pressures. Our recommendations provide a roadmap for meeting these challenges head on. The Government must acknowledge the importance and distinctiveness of our farming industry in every decision that it takes, in order to secure a prosperous future to benefit everyone in Wales.”
Main findings and recommendations of the report:
Economy, Community and Culture
- Farming is a vital profession, central to the preservation of the Welsh language and rural culture. It remains a physically demanding, low-income sector, largely made up of small family-run livestock farms with an average annual income of around £22,000. The Committee re-emphasises the cultural, environmental and economic importance of Welsh farms, which not only produce food but are the foundation stones of local communities and help sustain the Welsh language.
Inheritance Tax Reforms
- The Committee supports the objective of reforming Agricultural Property Relief (APR) and Business Property Relief (BPR) to close the loophole that encouraged wealthy investors to purchase agricultural land as a means of avoiding tax.
- The Committee is concerned that the UK Government has been unable to provide any clarity on the specific impact of its proposed IHT reforms in Wales or supply any Wales-specific data and that the change in policy may have a disproportionate impact on elderly farmers or those with terminal illness who have arranged their affairs on the basis that their estates would not be subject to IHT.
- The Government was complacent in the way it introduced such a major change to the tax treatment of farms in Wales. The absence of an assessment of the impact on Welsh farming estates created a vacuum which was filled by different organisations publishing competing statistics which predicted a varying scale of impact for those who inherit farming estates. Consequently, an unnecessary climate of uncertainty and confusion has emerged in an industry central to the cultural, environmental and economic fabric of rural Wales.
- The Committee is disappointed that the Government has maintained a “complacent approach” to measuring the impact of these tax changes despite the scale of public disquiet in Wales. In the absence of a Wales-specific Impact Assessment, the UK Government must delay implementing its final APR and BPR reforms until one has been published and scrutinised by the Welsh Affairs Committee.
Funding, ringfencing and Barnettisation
- The Committee notes the concerns raised by stakeholders during oral evidence about the potential for the UK Government’s decision to remove the ringfencing and apply the Barnett formula to future agricultural funding has the potential to lead to a reduction in Welsh agricultural funding. The evidence received from the UK and Welsh Governments does not suggest that it will decline.
- To help safeguard the future of agriculture, the Committee believes that there is a strong case for the Welsh Government to maintain the practice of ring-fencing agricultural funding. This would provide continuity, certainty and ensure that all allocated resources are dedicated exclusively to supporting Welsh agriculture. The Treasury, Wales Office and Welsh Government should work together to ensure that the baselining of agricultural funding into the Welsh Government’s block grant, alongside the application of the Barnet Formula to future allocations, does not lead to a real-terms decline in funding for Welsh agriculture.
Trade
- The UK Government must intensify efforts to fully establish a Sanitary/Phyto-Sanitary (SPS) zone with the EU, as a key step towards reducing trade friction for Welsh agricultural exports. It calls on the Government to publish a roadmap for how they plan to establish an SPS zone between the UK and EU by May 2026.
- The Committee is concerned that Free Trade Agreements have been entered into in the full knowledge that Wales’ agricultural industry may be negatively impacted. The Government must ensure that FTAs do not act as a ‘Trojan Horse’ that, overtime, will undermine the viability of farming in Wales.
- Free Trade Agreements with Australia and New Zealand pose a serious risk to Welsh agriculture, where beef and lamb dominate. As Tariff Rate Quotas expand and imports rise, Welsh farmers may face growing competition from these imports. The Committee calls on the UK Government, in consultation with the Welsh Government and industry, to publish an action plan by May 2028, outlining how Welsh farms will be supported and how any negative impacts of these deals will be tracked and addressed.
The future
- The Committee calls on the UK Government to work in close partnership with the Welsh Government to develop more targeted support and technical upskilling programmes for young and new entrants into the Welsh farming sector. In doing so, it must actively promote and protect the vital role of tenant farming in Wales as a pathway into the industry.
- The UK Government needs to take specific account of the unique cultural, environmental and economic circumstances of farming in Wales when making future policy decisions which have direct implications for the agricultural sector in Wales. The Committee recommends that any future policy decisions directly affecting the farming sector in Wales be accompanied by a Wales-specific impact assessment led by the Wales Office and undertaken in conjunction with the Government department leading the relevant policy change.
