Inside the ‘tractor tax’ loophole being exploited by the super-rich to bypass Rachel Reeves’s IHT raid

Ultra-wealthy farmers are exploiting a tax loophole to get around Rachel Reeves’s controversial inheritance tax raids, experts have warned.

A clause known as “gifts with reservation” means families have able to bypass death duty bills by passing down assets.

This can be done more than seven years before their deaths. However, technicalities around the exemption mean it is almost impossible for working farmers to make use of it.

The clause makes it clear the donor cannot benefit from the gift after it has been passed down. This means farmers who continue to live on the farm or run it as a business cannot use the loophole.

As a result of Labour’s Budget, from April 2026, inherited agricultural assets worth more than £1million will now be liable to inheritance tax (IHT) at 20 per cent.

The raid sparked a huge backlash from the farming community, with many arguing that the threshold of £1million is set too low as the price of agricultural land is inflated compared to the actual profit it produces as a farm.

Ian Cook, of wealth management firm Quilter Cheviot, said the fact ordinary farmers cannot benefit from a loophole used by the very wealthy was “grossly unfair.”

He told The Telegraph: “The gifts with reservation rules make gifting farms and farmland far more complicated as those farmers continue to work and benefit from the land, so it could be subject to tax further down the line.”

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He continued: “Whereas those who are ‘landbanking’ farmland with the express objective of mitigating inheritance tax have a distinct advantage over the others.

“It’s grossly unfair and completely goes against the Government’s stated aim. It adds additional pressure to smaller family-run businesses to sell. It risks breaking up these farms.”

Agricultural land and business owners have been exempt from inheritance tax since 1984. Labour had pledged not to interfere with farmers’ ability to pass on agricultural land to the next generation tax-free.

A Treasury spokesman said: “The gift with reservation rules are a necessary feature of the tax system to prevent abuse by people gifting assets but still benefitting from them. There remain exceptions to the rules if unforeseen circumstances arise.”

Earlier this week, National Farmers’ Union (NFU) president Tom Bradshaw said the inheritance tax charges will take money and focus away from investments to mitigate climate change.

Asked about prioritising what farmers want from the Government, he told the Environment Committee: “Let’s remove this from the agenda while we fix the other problems.

“That’s the challenge is that we’ve bought another problem into the sphere of challenges the farming industry is facing. We know the industry needs to make huge investment to meet our environmental mitigation responsibilities. This takes cash that should be going to invest in the future of our businesses to mitigate environmental risk.”

He added: “This just seems to be a distraction and it’s a rounding error in the budget. It’s not that it’s going to raise a significant amount of money.”