Insights

Changes announced in the 2024 Autumn Budget will bring significant restrictions to Inheritance Tax relief for farmers and landowners. These changes will affect the ability to pass family farms and businesses to the next generation, potentially increasing tax liabilities for those who don’t act before the changes take effect from April 2026.

It is important for individuals and families to understand how these changes will impact their financial and succession planning. By taking pre-emptive steps, farming families can ensure they are prepared and safeguard the future of their businesses.

How Inheritance Tax Works for Farmers Today

Agricultural Property Relief (APR) is a long-standing mechanism designed to reduce the Inheritance Tax (IHT) paid on agricultural assets transferred during lifetime or on death. Similarly, Business Property Relief (BPR) applies to trading businesses, helping to reduce tax liability when business assets are passed on to the next generation.

Under current rules:

• 100% APR is available for assets owned and occupied by the deceased for agricultural purposes for at least two years before death. For assets occupied by a third party, such as under a farming tenancy, this period extends to seven years, but 100% relief can still apply depending on the exact circumstances.
  
  
• 50% APR applies in all other cases, effectively reducing the IHT rate on these assets to 20%.

BPR works in a similar way:

• 100% BPR is available for an interest in a trading business.
  
  
• 50% BPR is available for any personally owned assets used by the business.

Importantly, there is currently no cap on the total relief available under APR and BPR, allowing farming families to pass on valuable assets with minimal tax liability.

What’s Changing from April 2026?

From 6 April 2026, the landscape for APR and BPR will shift significantly:

• A £1 million cap will apply to the total value of agricultural and/or business assets eligible for relief at 100%.
  
  
• Assets qualifying for APR or BPR at 50% will not count towards this cap.
  
  
• Any assets gifted within seven years of death will reduce the £1 million allowance.

After applying other exemptions and reliefs — such as the Nil Rate Band (currently set at £325,000), the Residence Nil Rate Band for homeowners who pass their home on to a child or other descendants (up to £175,000) and the spousal exemption on any assets passing to a spouse or civil partner — any non-relieved assets will be subject to Inheritance Tax at an effective rate of 20%. While this is lower than the standard IHT rate of 40%, it still represents a significant financial consideration for farming families.

How Will This Affect Farmers and Landowners?

From next April, for farms owned by two individuals planning to pass their business to a direct descendant, up to £3 million of assets can be transferred free from Inheritance Tax. Without direct descendants, such as children or grandchildren, this figure drops to £2.65 million. Any remaining agricultural or business assets will be taxed at a rate of 20%. 

One key concern is that the proposed changes do not allow unused portions of the £1 million APR/BPR allowance to transfer to a surviving spouse or civil partner. If the entire estate passes to the survivor on the first death, the surviving family would lose this element of the relief.

For farming families with high-value land but limited cash flow, this could create a need to sell assets to cover tax liabilities, undermining the long-term sustainability of the business.

What Should Farmers Do Now?

The proposed changes to APR and BPR raise significant concerns for family businesses and farms, especially those with substantial capital values but modest income streams. Previously, many owners could pass on the family farm or business without the burden of a tax liability. However, under the new rules, careful financial and succession planning will be essential to ensure that farming businesses remain viable for the next generation.

With just over a year before these changes take effect, now is the time to assess how the proposed reforms will impact your family and your business. Tailored advice is vital, as every situation is unique. Our Agriculture and Private Client Teams are on hand to guide you through the options available and help you prepare for these changes.