Inheritance Tax Reforms: Implications for Farmers & Landowners

The recent reforms to Inheritance Tax (IHT) have significant implications for farmers and landowners across the UK. Effective from April 2026, these changes alter the financial landscape for agricultural estates, necessitating proactive planning to safeguard family farms for future generations.

Understanding the changes

Historically, Agricultural Property Relief (APR) and Business Property Relief (BPR) allowed qualifying agricultural assets to be passed down free from IHT, aiding the transfer of farming and farming businesses within families on death. The new regulations, however, cap the 100% relief at £1 million for combined agricultural and business assets. Assets exceeding this threshold will receive 50% relief, resulting in an effective IHT rate of 20% on the surplus. This adjustment aims to address tax avoidance and promote a more equitable tax landscape.

Agriculture and Horticulture Development Board impact assessment

A review of the proposed IHT changes undertaken by the Agriculture and Horticulture Development Board (AHDB) has raised significant concerns for farmers and landowners.

• More than 75% of farms in England & Scotland over 50 hectares (124 acres) will be affected by increased Inheritance Tax liabilities due to the new asset threshold limits:
  • England: 33,286 out of 41,602 farms (80%)
  • Scotland: 8,918 out of 13,336 farms (67%)
• Farms under 20 hectares have been excluded, as they are assumed not to be commercial farming enterprises.
• Asset thresholds for IHT relief:
  • It have been assumed that a maximum of £2.65 million can be passed on tax-free if utilising both spouses’ Agricultural Property Relief (APR), Business Property Relief (BPR), and Nil Rate Band (NRB). There is however a tapering of the Residential NRB once the total value of the estate is at the maximum level noted to be potentially free of Inheritance tax (£2.65 million).
  • Unmarried or divorced individuals:
    • With children or grandchildren: £1.5 million tax-free
    • Without children or grandchildren: £1.325 million tax-free
• Farm holdings below 50 hectors are assumed to have an average value less than £1.325 million and will not therefore fall into a category that is at risk of being affected.
• Farmhouses in England are estimated to have an average value of £459,400, but this is likely to be significantly higher in areas such as Cheshire.
• Large farm holdings (over 100 hectares) will exceed the £2.65 million threshold, making them vulnerable to IHT liabilities.
• Uncertainty regarding business structures and ownerships:
  • Some businesses are owned by multiple siblings, potentially increasing tax-free thresholds.
  • Many farm businesses lack rigid partnership agreements, which could impact their ability to claim the full reliefs available.

These figures are concerning because they indicate that a substantial number of family-run farms, traditionally passed down through generations without significant tax burdens, will now face considerable financial challenges. The necessity to pay IHT may compel the sale of land or assets, disrupting farm operations and threatening the continuity of agricultural enterprises. This shift not only endangers the heritage of family farms but also poses risks to the broader agricultural sector and food security.

Steps to Take Now

To mitigate potential IHT liabilities, farmers and landowners should consider:

• Reviewing land and property ownership structures: Understanding how assets are held is key to tax planning. This includes identifying whether land is held personally, through partnerships, or within corporate structures and assessing how these structures impact tax liabilities.
• Establishing a formal partnership agreement: A legally binding partnership agreement ensures clarity in ownership and responsibilities, maximising tax relief opportunities and avoiding disputes among successors.
• Updating succession plans and Wills: Ensuring that your Will reflects current wishes and take advantage of available tax reliefs can prevent unexpected liabilities and ensure your family’s financial future remains secure. If you are going to be caught by these changes does your current Will leave all assets to the survivor? If so this approach could now bring about a loss of allowances, so a Will review is now more important than it has been.
• Maximising available tax reliefs: Leveraging APR, BPR, and NRB to their full potential, considering options such as gifting strategies or the use of trusts to manage tax exposure effectively.
• Seeking expert legal advice: Professional guidance is essential to navigating these complex changes effectively. Engaging with specialists in agricultural law and taxation can help develop bespoke strategies to protect farming businesses for future generations.

How can Butcher & Barlow assist?

At Butcher & Barlow, we understand the challenges these changes present to the farming community. Our experienced Private Client and Agricultural Law specialists can help you put the necessary legal structures in place to protect your assets and ensure a secure future for your family and business.

Whilst we hope that these proposals will be reviewed, it is better to be prepared. Contact us today to discuss your options with our expert team. Call Mike Bracegirdle or Tim Bailey on 01606 334309.

Mike Bracegirdle: Agriculture & Rural Affairs

Tim Bailey: Wills, Trusts & Estates

 

The information in this article was correct at the time of publication. The information is for general guidance only. Laws and regulations may change, and the applicability of legal principles can vary based on individual circumstances. Therefore, this content should not be construed as legal advice. We recommend that you consult with a qualified legal professional to obtain advice tailored to your specific situation. For personalised guidance, please contact us directly.