The Chancellor is set to hit aristocrats and other wealthy property owners with a £1 billion inheritance tax raid in her Budget.

Rachel Reeves is looking at reforming business relief, a loophole which allows the rich to halve their inheritance tax bills.

She could also tackle agricultural property relief (APR), which is designed to help farmers pass land on but has increasingly been used by the wealthy to avoid inheritance tax.

However, the Treasury will promise exemptions for small businesses and family farms, amid fears from agricultural groups over the future for British farmers.

The Chancellor will say abolishing the loopholes is the “fair way” to raise money from the wealthy. Aristocrats will be the most affected, as they own 30 per cent of England’s land.

On Saturday, the Country Land and Business Association (CLA), said the changes could “endanger our rural way of life, and the nation’s food security”, if not applied carefully.

Bid to raise extra £35 billion

The changes would be part of a bid to increase taxes by as much as £35 billion, in what would be the largest tax-raising Budget in history.

Other ideas said to have been considered include extending the seven-year rule. At present, if a living person gives a descendant a gift, the descendant does not have to pay inheritance tax on it unless their parent dies within seven years.

Ms Reeves is looking at extending the threshold to 10 years, giving three more years’ scope for the taxman to access cash.

Business relief currently allows the rich to halve inheritance tax bills, at a cost to taxpayers of about £2 billion a year.

Last year more 3,000 estates were exempted from more than £1.4 billion in business relief. APR totalled a further £400 million.

However, by exempting small businesses and family farms, the Chancellor’s reforms would raise around £1 billion in total.

‘It is not a loophole’

But Victoria Vyvyan, the president of the CLA, said: “APR is essential, not a loophole.

“Labour has said it’s the party of the countryside. Farmers need clear assurances that this commitment will last beyond the Government’s first year in office.

“Scrapping APR would threaten the future of family farms across the country. Without it, countless farmers would be forced to sell land to cover inheritance taxes, endangering our rural way of life, and the nation’s food security.”

Tom Bradshaw, the president of National Farmers Union (NFU), said: “Major APR changes would put at risk many farming families’ succession plans and consequently undermine the Government’s own ambitions for food and environmental security.

“I’m also very concerned that changes would damage the tenanted sector, as landowners will have much less incentive to let land to agricultural tenants.

“In short, this family farm tax, which is what removing APR amounts to, could be too much for some farming businesses which are already struggling with numerous challenges.”

He added: “Farming is often a generational business, and APR is what makes it possible for small family farms to pass from one generation to another.”