Inheritance Tax relief and the future of family farms

By Heather Bright, Partner and ARA specialist

Many farmers are increasingly concerned about the potential scrapping of Inheritance Tax (IHT) relief for agricultural property.

This concern has been stoked by recent warnings from Conservative politicians and rural business owners, who fear that a Labour Government may remove this relief, threatening the viability of family-run farms across the country.

The potential impact on family farms

Inheritance Tax relief, particularly Agricultural Property Relief (APR), has long been a lifeline for family farms.

APR allows farmland to be passed down to the next generation without incurring substantial tax liabilities.

This relief is critical because the value of farmland has significantly increased over the years, (the average arable price in 2023 was £11,200 per acre).

Without APR, inheriting such property could result in a hefty IHT bill – an amount that could force families to sell off land or assets, effectively dismantling the farm.

This concern has been articulated by Conservative party members, who have warned that Labour’s potential plans could lead to a £1 billion IHT raid on farmers.

Labour’s position and the uncertainty ahead

While Labour has dismissed these claims, they have not categorically ruled out the possibility of scrapping IHT relief for farmland.

This uncertainty leaves many farmers in a precarious position, unsure of how to plan for the future.

At this time, farmers should review their current position and prepare for any eventuality. Steps can be taken to do this, including the following:

Review your estate plan

If IHT relief is scrapped, the tax burden on inherited farmland could be very large. We can help you by reviewing your current estate plan and helping you assess your potential tax liabilities, exploring strategies to overcome them.

Consider diversification

Diversification of farm activities can sometimes provide additional revenue streams that might be used to cover potential tax liabilities.

For instance, expanding into areas like agritourism, renewable energy, or direct-to-consumer sales could generate income that helps offset the impact of IHT.

Explore gifting strategies

One option to reduce the IHT burden is to gift portions of the farm to family members during your lifetime.

By doing so, you may reduce the value of your estate and the corresponding tax liability.

However, this strategy requires careful planning, as gifts may still be subject to tax if the giver does not survive for seven years after the gift is made.

Utilise trusts

Trusts can be an effective way to manage the transfer of agricultural assets while potentially reducing IHT liability.

Establishing a trust allows you to control how your assets are distributed and can provide tax advantages, though this is a complex area that requires our professional advice.

If you are worried about the potential scrapping of the IHT relief or would just like to prepare yourself for any potential IHT bills, our team are here to help.

Speak with us today for expert advice and guidance.