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Inheritance Tax Changes for Farmers: What You Need to Know

View profile for Harry McCarthy
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Succession planning is crucial for farmers and business owners, especially in light of the upcoming changes to Inheritance Tax (IHT) rules set to take effect in April 2026. These changes could significantly impact how agricultural, and business assets are passed down to the next generation.

What Inheritance Tax Do Farmers Pay?

Currently, farmers benefit from Agricultural Property Relief (APR) and Business Property Relief (BPR), which can provide up to 100% relief from IHT on qualifying assets. This means that, under the existing rules, many farming estates can be passed on without incurring an IHT liability.

However, starting from April 2026, the government plans to cap the 100% relief to the first £1 million of combined agricultural and business property assets. Any value above this threshold will be subject to a 20% IHT rate.

Are Inheritance Tax Rules Changing?

Yes, significant changes to IHT rules are on the horizon. The October 2024 Budget announced reforms that will affect APR and BPR, introducing a cap on the relief available and altering the tax landscape for farmers and business owners.

These changes have sparked widespread concern within the farming and business communities, leading to protests and calls for the government to reconsider or delay the implementation of the new rules.

Planning for the Future: Steps to Consider

Given the impending changes, it's essential to review and possibly revise your succession planning strategies. Here are some steps to consider:

1. Understand Your Current Position

  • Asset Valuation: Obtain up-to-date valuations of your agricultural and business assets.
  • Business Structure: Review your current business structure to understand how the changes may affect you.
  • Relief Eligibility: Assess your eligibility for APR and BPR under the new rules.

2. Assess Potential IHT Exposure

Calculate the potential IHT liability based on the proposed changes, considering the £1 million cap on 100% relief and the 20% rate on assets above this threshold.

3. Explore Mitigation Strategies

  • Lifetime Gifts: Consider transferring assets to the next generation during your lifetime, keeping in mind the associated risks and tax implications.
  • Trusts: Evaluate the use of trusts to manage and protect assets, potentially securing current reliefs before the changes take effect.
  • Spousal Transfers: Utilise spousal exemptions to maximise reliefs and allowances.
  • Life Insurance: Explore life insurance options to provide liquidity for potential IHT liabilities.
  • Will Review: Update your Will to reflect the new tax environment and ensure your estate is distributed according to your wishes.

4. Implement Your Plan

Work with legal and financial advisors to implement your chosen strategies well before the April 2026 deadline, allowing ample time for any necessary adjustments.

Conclusion

The upcoming changes to Inheritance Tax rules represent a significant shift for farmers and business owners. Proactive planning is essential to navigate this new landscape and protect your legacy.

Next Steps: Get in touch

If you would like to discuss your Private Client matter then please don’t hesitate to reach out to our team of legal experts at John Hodge Solicitors, conveniently located throughout the South West, with offices in Bridgwater, Bristol, Clevedon, Wedmore, Weston-super-Mare and Yatton.

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