Reforms to Inheritance Tax – Implications for the agricultural sector

By Andrew Heskin, Partner and ARA specialist and Heather Bright, Partner and ARA specialist at Moore Thompson

The Government’s announcement in the Autumn Budget 2024 regarding the proposed reforms to Inheritance Tax (IHT) has sent shockwaves through the agricultural sector.

The key changes, specifically relating to Agricultural Property Relief (APR) and Business Property Relief (BPR), mark one of the biggest changes in tax policy for rural estates and farm businesses in decades.

These reforms are now subject to a crucial consultation period, offering affected stakeholders an opportunity to shape the final implementation of these tax adjustments.

For generations, APR and BPR have been vital in ensuring that farms and agricultural businesses can be passed down without prohibitive tax burdens, allowing families to maintain the continuity of farming operations.

However, the introduction of a new £1 million allowance cap, coupled with revised relief rates, raises pressing concerns about the financial viability of many farming enterprises and the long-term sustainability of family-owned agricultural businesses.

Understanding the key changes

The proposed reforms aim to modernise the IHT system while increasing revenue for the Government.

However, for farmers and landowners, these changes present a series of potential challenges that could have profound consequences for estate planning and succession planning.

Introduction of the £1 million cap

Under the new framework, the combined value of properties eligible for 100 per cent APR and BPR will be capped at £1 million.

Any qualifying agricultural or business property exceeding this threshold will only receive relief at a reduced rate of 50 per cent, altering the tax liabilities for larger estates.

Many farm businesses operate on extensive landholdings that far exceed this value, meaning substantial portions of inherited estates may become subject to higher tax rates, potentially forcing heirs to sell land or assets to cover liabilities.

Changes to relief on unlisted shares

Additionally, the reform package includes adjustments in relief rates for certain traded but unlisted shares.

This is particularly relevant to farming businesses that have diversified into agribusiness ventures, renewable energy projects, or commercial enterprises to remain economically viable.

Previously, these strategies benefited from more favourable tax treatment under APR and BPR, but the new structure may limit these advantages.

The consultation – Key areas of focus

Given the implications for the agricultural sector, the Government has launched a consultation running from 27 February 2025 to 23 April 2025 to gather input from industry professionals, landowners, and tax experts. The primary areas of focus include:

Application of the £1 million allowance – A major concern is how this cap will be applied, particularly in relation to trusts, which have long been a key tool in agricultural estate planning. Many farming families utilise discretionary or life interest trusts to ensure assets remain within the family, and there is considerable uncertainty over whether these structures will still provide tax-efficient solutions under the new regime.
Transitional rules – With the changes set to take effect from 6 April 2026, the consultation is seeking feedback on how transitional provisions should be structured. This is particularly relevant for transactions already in progress or those planned in anticipation of succession events.
Impact on multi-generational farms – The reforms could disproportionately affect multi-generational farming businesses that rely on APR to maintain family ownership. Stakeholders will be asked to provide evidence on how the tax changes might impact intergenerational transfers and the ability to sustain family-run farms.

Concerns from the agricultural sector

The agricultural community has voiced serious concerns about the potential repercussions of these reforms, particularly the risk of forced land sales to meet increased tax liabilities. Key issues include:

Land values far exceeding the new threshold – Agricultural land values in many parts of the UK are significantly above £1 million, meaning a substantial number of farms will be unable to pass to the next generation without incurring tax burdens.
Disruption to long-term planning – Many farmers operate with long-term succession plans in place, relying on APR and BPR to facilitate smooth transitions. The uncertainty surrounding these changes could lead to rushed decisions, unintended tax liabilities, and operational disruptions.
Impact on tenant farmers and partnerships – Tenant farmers and those in farming partnerships may also face unintended consequences. If landlords are forced to sell land rather than pass it down, tenant farmers could face eviction or changes to tenancy agreements that impact their livelihoods.

Strategic actions to consider

Given the potentially far-reaching effects of these tax changes, agricultural stakeholders must take proactive steps to mitigate risks and engage in the consultation process.

Participate in the consultation

The consultation presents a vital opportunity for farmers, landowners, and industry representatives to voice their concerns and advocate for adjustments to the proposed reforms.

Engaging with industry bodies such as the National Farmers’ Union (NFU), the Country Land and Business Association (CLA), and specialist tax advisers can help strengthen the sector’s response.

Review estate and succession plans

Farmers should conduct a thorough review of their estate and succession plans in light of the impending changes.

This may involve re-evaluating asset structures, exploring alternative IHT strategies, and assessing the impact of the £1 million cap on long-term plans.

Analyse trust structures

Given the uncertainty surrounding trusts, you should seek specialist advice on their continued viability for estate planning. Adjustments to trust arrangements may be required to ensure they align with the new rules while still achieving the desired tax efficiencies.

Consider restructuring farm businesses

With diversification becoming an increasingly common strategy for modern farm businesses, it may be necessary to assess how different parts of an agricultural operation are structured. For example, separating core farming activities from commercial ventures could help optimise tax treatment under the new rules.

The road ahead

The coming months will be crucial in determining the final shape of these IHT reforms.

While the consultation period offers an opportunity to influence policy, farmers and agricultural business owners need to take proactive steps now to prepare for potential changes.

We are committed to supporting clients with these complex changes and ensuring they are well-positioned for the future.

For more information on the consultation, visit: UK Government Consultation on IHT Reforms

As always, we encourage you to get in touch with our team for expert advice and assistance with anything related to the upcoming changes and preparing a comprehensive response to the consultation.