The Department of Agriculture, the Environment and Rural Affairs has set out its reasoning behind the claim that only a minority of farmers will be hit with inheritance tax.

The farming minister Andrew Muir of the Alliance Party had declared to the Assembly on Monday that “it is impossible to precisely determine the number of farms that will be affected, but, from the data, one-third is a reasonable estimate”.

This was based on an average land value of just under £13,800 per acre.

His statement echoes claims made by the Labour government.

placeholder image — General image of sheep in a UK field; farmers are now faced with paying inheritance ax on their farms

For example, Northern Ireland Secretary Hilary Benn said last week that the tax would affect only a “very small number” of farming estates, and Welsh First Minister Baroness Morgan stated on Tuesday that the “vast majority of farms will not have to pay”.

These claims have been challenged by both the NFU and the UFU, with the former describing such estimates as “a significant miscalculation”, and the latter indicating that they are “misleading”.

Under the new tax, farmers will be liable to pay inheritance tax of 20% on farms valued at over £1m.

So if a farm is judged to be worth £1.5m, then £500,000 will be taxed.

At the moment, they pay no inheritance tax.

(With inheritance tax, if you survive more than seven years after you transfer an asset, it is exempt from the tax).

DAERA was asked to explain Mr Muir’s ‘one-third’ estimate.

It responded: “With NI agricultural land values at £13,794/acre in 2023, they may be around £15,000/acre in 2026 when the inheritance tax changes take effect. This would mean that 27 hectares [66.7 acres] of land would equate to an agricultural value of £1m.

“DAERA analysis of farms by owned land (NI agricultural census) shows that 34% of farms in Northern Ireland owned more than 27 hectares of land in 2023.”

This reporter had calculated the average value of a farm as being around £1.4m, based on the figure of 98.6 acres (which is DAERA’s 2023 statistic for an average farmed area), and on minister Muir’s valuation of £13,800 per acre.

The department responded that ‘farmed area’ is different from the ‘owned area’, with the latter being the one used to calculate inheritance tax.

It added: "Furthermore, it is not the case that 50% of farms will lie either side of the average (mean) value. With a large number of very small holdings, more farms will be below the average (mean) land area than above it.

"The analysis is based only on estimating the number of farms where the owned land exceeds £1m and hence where it would be no longer possible to use Agricultural Property Relief to receive 100% relief on the value of agricultural land for the purposes of inheritance tax.

"There are a number of caveats to the analysis. It does not take into account development value which would increase the number of farms affected although only by a relatively small number.

"The land under the ownership of a single farm unit may be owned by more than one person (each would have an individual £1m limit on agricultural property relief which would reduce the impact) and agricultural land values vary significantly across NI.”