In this article, accountant Saffery issues an update on the government's farm inheritance tax proposals, as well as the steps that farmers can take at this stage.
Announced in the budget, the proposals are the largest change to the inheritance tax reliefs available to farms, businesses and rural landowners since 1992.
Then, John Major's government increased the top rate of relief for both agricultural property and business property to 100%.
Now it is estimated that over 4.8 million acres of UK farmland are at risk from the Labour government's changes.
The proposed changes coming into effect from 6 April 2026 are:
• To introduce a £1m allowance per person, which can be used for either Agricultural Property Relief (APR) or Business Property Relief (BPR), or a combination of both. Assets which previously qualified for the 100% rate of relief will be eligible for 100% relief only up to the total value of the £1m allowance.
• Assets qualifying for APR or BPR above the £1m allowance will receive relief at 50% of the value of the asset.
• Similar rules will apply to trusts within the ten-yearly inheritance tax regime, which will receive a £1 million allowance, but further details on the application of the rules for trusts have yet to be released.
• The government also announced that shares listed on the Alternative Investment Market (AIM) will be eligible for 50% BPR but not be within the category of assets qualifying for the £1m allowance. AIM share portfolios were popular as inheritance tax efficient investments for many older individuals and the effect of the change will be widespread.
Certain ‘anti-forestalling’ rules have been introduced. Notably, any gifts made on or after budget day (30 October) will be within the scope of the new rules if the donor dies on or after 6 April 2026 but within seven years of a gift.
In addition, where new trusts are set up on or after budget day, these will share a £1 million allowance between them rather than each being entitled to a whole allowance.
In more positive news, lifetime gifting remains a viable option, with gifts where the donor survives seven years continuing to be exempt, while the qualifying conditions for business property have not been altered.
There is clearly more detail expected from the government before the changes come into effect, but there are steps which farmers may wish to consider in reviewing their affairs before the changes come into force.
How does this impact business partnerships?
Partnerships are one of the traditional models of operating farms and other rural businesses.
Ensuring that partnership arrangements are fit for purpose is one recommendation, as the limit of £1 million of 100% allowances will be per individual.
A spouse partnership, for example, will have access to £2 million of allowances if the partnership is appropriately structured, with the existing nil rate bands on top of this.
Similar considerations apply to shares in family companies, where each individual shareholder will have their own allowance.
Following the budget, a great deal of commentary centred around the availability of a combined allowance of £3 million between a married couple.
With the correct structuring and application of the 50% APR/BPR rate, it is possible for this to be the case.
Should Wills be reviewed?
Ahead of these changes, reviewing Wills and early succession planning for businesses will be vital.
Navigating the complexities of transferring business assets, lifetime gifting options, potentially exempt transfers (PETs), and the upcoming anti-forestalling rules will require professional advice.
Under the new rules, leaving businesses to spouses could restrict the total relief available to a couple, while life insurance may need to be checked to consider whether existing cover is sufficient.
Those challenged by the proposed changes should assess the efficiency of existing succession planning and wills under the new rules, review existing structures, and seek advice on expanding partnership interests or the different types of shares available for family companies.
Advice should also be taken over how changes will interact with the continuing rules for capital gains tax (CGT) reliefs for gifting assets or shares, and in providing robust valuations to help in the decision making and planning for the future of owner managed businesses.
Is cashflow planning important?
For businesses worth more than £1m, cashflow planning to pay IHT on the value of the business will be paramount.
This will be even more important where the business owners include old family trusts which have additional issues to overcome – for example it may not be immediately possible to use income to pay an IHT liability.
Payment of inheritance tax using the instalment regime should be investigated, as well as available options for raising finance to pay the tax.
The new rules are intended to commence from April 2026, with a technical consultation expected on the implementation of the changes for trusts early in 2025.
