By Andrew Heskin, Partner.
With the changes to Inheritance Tax (IHT) made in the Autumn Budget, farmers now need to take a proactive approach to safeguard their legacy and family business.
From April 2026, Agricultural Property Relief (APR) and Business Property Relief (BPR) will be capped at £1 million, meaning any value above this threshold will only qualify for 50 per cent relief.
For farmers, who are often land-rich but cash-poor, this could translate into an effective IHT charge of up to 20 per cent on property and assets above the limit.
As such, without proper planning, this change could make it harder to pass the family farm on to the next generation without financial strain.
Despite this, recent reports suggest that the agricultural sector is the cornerstone of British sustainability and the founding principle of a healthier nation.
We recently wrote an article on this which you can read here.
Therefore, to protect your farm’s future, now might be the time to act.
Start succession planning early
One of the most effective ways to prepare for the changes is to start thinking about succession now.
Transferring agricultural assets to the next generation during your lifetime could help manage your estate’s value and reduce your IHT exposure.
Options include outright gifts to children or grandchildren, or placing assets in trusts to maintain some control over their use.
Trusts can be tailored to suit your needs while providing tax efficiencies, but they require careful structuring to avoid unintended consequences.
Gifting assets during your lifetime can reduce the value of your estate and avoid IHT, provided you survive seven years from the date of the gift.
This includes farmland, agricultural buildings, and other qualifying assets.
However, it’s essential to balance the potential IHT savings with the risk of triggering CGT.
Timing and strategy are critical here, so professional advice should be sought before making any significant gifts.
By planning early, you’ll have more time to navigate potential challenges, such as triggering Capital Gains Tax (CGT) on asset transfers, and ensure your plans align with your long-term goals.
Manage your pension strategically
From April 2027, unused pension funds and death benefits paid into an estate will be subject to IHT, undoing the favourable reforms of 2015.
For farmers who have built up significant pension savings, this could mean a sizeable tax liability.
One practical option is to withdraw your Tax-Free Lump Sum earlier and use it to reinvest, gift to family members, or cover business costs.
This ensures those funds are used strategically and not caught up in your estate when IHT is calculated.
Review your estate plan
These changes to APR, BPR, and pensions are significant, and the earlier you adapt your estate plan, the better.
Reviewing your current arrangements with a professional tax adviser will help you identify the most effective strategies for your situation.
Whether it’s transferring assets, restructuring ownership, or reviewing your pensions, a good plan will ensure your farm remains in the family for generations to come.
Don’t wait until the changes take effect – now is the time to take control of your estate planning.
Speak with a tax adviser to review your options.