FAQs on changes to Inheritance Tax legislation for farmers

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Inheritance Tax reforms were first announced in the 2024 Autumn Budget and draft legislation has now, finally, been published. It confirms that from April 2026, 100% Agricultural Property Relief and Business Property Relief will only apply to £1 million of qualifying assets. Above this allowance, 50% relief will apply. 

Many farmers are concerned about the impact of such significant changes, but there are ways to put yourself, your family and your business in a better position.

This FAQ guide will help you identify aspects of IHT and succession planning that you need to consider.

1. What should I prioritise when planning the succession of my business and gifting of assets?  

Your succession and gifting of assets either in life or on death shouldn't be purely about tax efficiency. It should be firstly about what you want to do for yourself and your family. Fit your plans within the tax legislation and new rules, rather than the other way round.

Tax is important, but it is equally important to consider:

• What your assets are and who you want them to go to
• Your family’s input and wishes
• What your current will says
• What your current partnership agreement is
• If and when you plan to retire from the farm
• How much income you need to live on

2. When should I start this process?

It’s important to start the process as soon as possible to understand how you will be impacted by the new legislation and to make appropriate arrangements.

You need to have considered all the points above before starting to think about mitigating the potential IHT. You need a plan of where you would ideally like things to go (or not), and you need to know whether you're still going to require income from these assets. It’s all very well giving the farm away, but if you still need some income from it to live on, this needs to be factored in and structured correctly.

3. Will life insurance help pay my Inheritance Tax bill?

For those not ready to gift assets to their children, life insurance will be something to consider. It is an effective way of protecting the next generation and providing a fund for inheritance tax should anything unexpected or tragic happen, rather than your beneficiaries having to sell off the farm.

For older landowners, life cover will be more expensive, but term cover for seven years until the gift drops out of IHT might be appropriate.

4. My children don’t want to take on the farm. What do I need to consider?

Every family business has different circumstances. There’s no one answer for everybody. In this situation, mum and dad need to decide if and when they would like to retire from the farm.

When you are ready to stop working or reduce your working hours, you could either sell the farm, rent it out or enter into a joint venture with another farmer.

If they choose to retire, they can sell the farm, pay the appropriate Capital Gains Tax, and then distribute the money to their children. Alternatively, they can give parts of the farm to non-farming children to help save on IHT. In this case they might take on a tenant when mum and dad retire and it could be structured so both parents and the children own shares of the farm. While there’s a lot of detail to advise on here, after death, the children can choose what to do with the farm, such as sell it. Just because the next generation don’t want to farm, it doesn’t mean they can’t be involved in the succession planning and IHT planning.

5. Should I put part of my farm into a trust to improve my Inheritance Tax position?

Trusts can be beneficial, and are particularly useful when you haven’t decided on your succession plans but you need to need to remove assets from your estate before deciding which family members should own them.

Transferring assets into trust before the new rules are introduced may reduce your IHT liability but this is a complex area and advice should be sought if this is something you are considering.

Time to take action

These are huge, once in a lifetime-type decisions and very careful thought is required as it’s unlikely they will be changed.

Now we have the draft legislation, it is time to start taking action and formulating your plans to ensure you put yourself and your family in a better position.

Rules around estate planning and IHT are very complex and seeking specialist advice will help ensure you pass on your assets in the most tax-efficient way.