The UK’s farming sector is facing significant changes as new Inheritance Tax (IHT) rules are set to take effect from April 2026. For decades, family-run farms have benefitted from Agricultural Property Relief (APR) and Business Property Relief (BPR), helping to ensure the smooth transition of farms to the next generation without crippling tax burdens. However, recent changes announced in the Budget have introduced a new upper limit of £1 million for these reliefs, sparking widespread concern across the farming community. Ives & Co, leading solicitors serving Nottingham and Kent, can assist with wills and probate.
How Will the Changes Affect Farmers?
Under the new rules, any assets above the £1 million threshold that are not passed to a surviving spouse or civil partner will be subject to IHT at an effective rate of 20%. Previously, APR and BPR could provide relief on the full value of farming assets, meaning that family farms were often able to pass between generations without triggering major tax liabilities. Now, many farmers could find themselves unexpectedly within the scope of IHT.
This has caused significant anxiety, with farming groups warning that the changes could force smaller farms to sell land or assets to cover tax bills, potentially threatening the future of family-owned farms and rural businesses. The National Farmers Union (NFU) and the Country Land and Business Association (CLA) have both raised concerns that these reforms could undermine the UK’s food security and rural economies.
Government Miscalculations and Industry Concerns
The government’s forecasts initially suggested that only 500 farming estates per year would be affected by the new rules. However, analysis by the Central Association of Agricultural Valuers (CAAV) suggests this number could be as high as 2,500 per year, with up to 75,000 farms impacted over the coming generation. If these predictions prove correct, the impact could be far more severe than the government originally estimated.
Steps Farmers Can Take to Prepare
With the changes set to take effect in April 2026, farmers have a narrow window to put effective succession plans in place. Options to consider include:
- Transferring assets early: Lifetime gifts of land or farming assets, if made at least seven years before death, can be exempt from IHT. However, careful planning is required to avoid capital gains tax (CGT) implications.
- Using spousal exemptions: Transfers to a spouse or civil partner remain fully exempt from IHT, meaning that structuring asset transfers within a couple can help reduce tax liabilities.
- Exploring business structures: Expanding family partnerships may enable farming families to maximise their reliefs by applying multiple £1 million APR/BPR thresholds across different business owners.
- Life insurance: Policies structured in a trust could help cover potential IHT liabilities, particularly in cases where land cannot be transferred without impacting business operations.
What’s Next?
A public consultation is scheduled for January 2025, focusing on how the new rules will apply, particularly concerning trusts. Farmers and industry bodies hope that adjustments can be made before the changes come into force, particularly regarding the ability to transfer the £1 million APR/BPR limit between spouses.For now, seeking expert financial and legal advice is crucial for farm owners looking to secure their business for future generations. With careful planning, farmers can navigate these changes and protect the long-term viability of their farms.
