Selling or transferring agricultural land and farms can have significant tax implications, particularly concerning Capital Gains Tax (CGT) and Inheritance Tax (IHT). Following increased CGT rates and major IHT reforms announced in the 2024 Autumn Budget, and a further amendment in the 2025 Autum Budget, it is important to consider the current rates and the implication of future increases.
Capital Gains Tax
Capital Gains Tax (CGT) is charged on the profit made from selling an asset, including agricultural land and farms.
Calculation: The gain is calculated as the difference between the sale price and the original purchase price, minus allowable expenses such as legal fees and improvement costs.
Rates: CGT rates for chargeable assets were brought in line with residential property, effective for disposals made on or after the 30 October 2024. These rates increased from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher rate taxpayers, meaning the same rates are now applicable to both residential and non-residential properties, as well as other chargeable gains.
Exemptions and reliefs:
Annual Exempt Amount: Each individual has an annual exempt amount which has been reduced over recent years to £3,000 in 2024/25 (it was £6,000 in 2023/24)
Business Asset Disposal Relief (BADR): This relief can reduce the CGT rate to 14% on qualifying business, including farms, up to a lifetime limit of £1 million. This rate was increased from 10% on 5 April 2025 and is set to be raised to 18% in 2026/27. Any remaining gain will be taxed at 24% from 30 October 2024.
Inheritance Tax
Inheritance Tax (IHT) saw one of the biggest changes following the Autumn Budget 2024 and draft legislation was published in July.
IHT is charged on the value of an estate passed on after death. The standard IHT rate is 40% on the value above the nil-rate band of £325,000, topped up to £500,000 if you leave your home to your children or grandchildren and your total estate is valued under £2 million.
Two reliefs are potentially available to those estates containing agricultural land and farms - Agricultural Property Relief (APR) and Business Property Relief (BPR). Currently, this applies to the whole value of the qualifying assets but from 6 April 2026 the combined relief cap for 100% APR and BPR will be £1 million per individual.
The Chancellor announced in the 2025 Autumn Budget that unused APR/BPR allowance will be transferable between spouses or civil partners on death even if the first death occurred prior to 6 April 2026.
Agricultural Property Relief
APR can still significantly reduce the IHT liability on agricultural land and buildings. It applies to agricultural property occupied for agricultural purposes. This includes land, buildings, and farmhouses proportionate in size and character to the agricultural land.
APR can provide up to 100% relief on the agricultural value of the property up to £1 million for an individual, with any amount above this receiving 50% relief. To qualify, the property / land must have been owned and used for agricultural purposes for at least two years (if occupied by the owner) or seven years (if occupied by someone else).
BPR can provide 100% relief on the value of the business property up to £1 million if it has been owned for at least two years before the transfer with any amount above this receiving 50% relief.
Combining APR and BPR
In some cases, it is possible to combine APR and BPR to maximise tax relief. For example, APR can be applied to the agricultural parts of the property, while BPR can be applied to the business elements.
Any unused allowances following the death of a spouse or civil partner will be transferrable to the surviving partner.
In light of the proposed changes, effective succession planning has never been more crucial. Our recent Family Business Survey highlighted that 34% plan to pass on the farm to the next generation, although more than half had not discussed their plans. Having proactive succession conversations earlier can ensure a smooth transition of your agricultural land and business assets and help maximise tax reliefs and secure the future of your family business. The earlier planning is undertaken, the greater the chance of success.
