Autumn Budget Implications For Farmers And Land Owners

By Mike Bracegirdle

The recent Autumn Budget 2024 has introduced significant changes to Inheritance Tax (IHT) reliefs, particularly affecting Agricultural Property Relief (APR) and Business Property Relief (BPR), sparking controversy and dismay amongst many farmers and landowners.

Effective from April 2026, APR and BPR will be capped at £1 million for combined business and agricultural assets, with assets exceeding this threshold receiving only 50% relief.

This reform aims to target larger estates, with the Chancellor stating those owning small farms would be protected. However, it is anticipated to impact a broad spectrum of farmers and landowners, including those operating smaller farms. Given the high value of farmland, especially in parts of the North West, many agricultural estates may now face IHT liabilities. Landowners with properties holding amenity or development value could be particularly affected.

In light of these changes, it is crucial for farmers and landowners to seek comprehensive advice specific to their situation from both accountants and legal advisors.

Proactive planning before April 2026 may involve strategies such as making lifetime gifts or establishing trusts, provided current regulations on Potentially Exempt Transfers and Capital Gains Tax holdover relief remain unchanged.

For those considering trusts, attention must be given to funding the 10-year periodic charge, which could be at an effective rate of 3%, especially since APR may only be available at 50% for these assets. For older trusts, court applications might be necessary to allow income retention within trusts to cover these charges.

However, this form of planning may not be an option for all farmers, dependant upon their agricultural assets. To be effective for IHT purposes, gifts must be made without the donor retaining any benefit from the assets, which may not be feasible for those reliant on their agricultural property.

Farmers and landowners should consider the following strategies:

• Asset Restructuring: Selling high-value capital equipment and leasing it back can remove these assets from the balance sheet, potentially reducing the estate’s taxable value.
• Estate Division: Married couples jointly owning a farm might divide ownership, allowing each to utilise the £1 million APR cap, effectively doubling the relief to £2 million. Additionally, each partner may qualify for an extra £500,000 relief if residential property is involved, potentially mitigating IHT.
• Tax Payment Planning: For estates valued at £5 million, the IHT liability could be spread over ten years, resulting in an annual tax payment of approximately 1% of the estate’s value.
• Market Considerations: Anticipated tax changes may lead to a fall in value of farmland as investors become more cautious, refraining from additional land purchases This could pose challenges for farmers with high loan-to-value ratios who have used their land as collateral.

Whilst April 2026 may seem distant, strategic planning requires careful consideration, and waiting could limit your options. We recommend starting discussions with your legal and financial advisors and land agents as soon as possible to discuss relief strategies that align with your long-term goals.

Contact us today to arrange a no obligation initial conversation about your circumstances. We are here to guide you through these changes with clarity and care, ensuring you make informed decisions that safeguard your legacy and the future of your agricultural estate.