The future of agricultural property relief and how potential changes could impact family farms
By Heather Bright, Partner and ARA specialist
For generations, agricultural property relief (APR) has played a vital role in preserving family farms by offering much-needed protection from Inheritance Tax (IHT).
The relief allows farmers to pass down their land and business to the next generation without the crippling burden of tax liabilities, which could otherwise force the sale of farmland.
However, there is growing concern that changes to APR may be on the horizon as part of the Government’s upcoming Budget.
With more than 86 per cent of farmers surveyed in a poll by the Country Land and Business Association (CLA) believing that they would have to sell some or all of their land to cover IHT if APR were scrapped, the potential impact of such reforms is weighty.
What is APR?
APR is designed to protect agricultural land, buildings, and certain farmhouses from IHT, allowing family-run farms to continue operating after the death of the farmer.
Essentially, APR provides relief of up to 100 per cent on the agricultural value of the property, meaning that the land can be passed on without the farm incurring a tax burden.
Without APR, many family farms would struggle to remain intact, as they could face tax liabilities of up to 40 per cent of the land’s value.
The potential impact of scrapping APR
If the Government decides to scrap or cap APR, the impact on family farms could be severe.
Farmers would be faced with higher IHT bills, leaving them with few options to settle these liabilities.
For an average family farm of 215 acres, it is estimated that 40 per cent of the land would need to be sold to pay IHT if reliefs were removed.
Diversified farms, which have multiple income streams, could face even greater losses, with up to 54 per cent of their land at risk.
This not only threatens the continuity of family-run farms but also poses a risk to the UK’s food security.
Many farmers believe that selling off large portions of agricultural land to settle tax liabilities could disrupt food production, especially if the land is sold to corporations not involved in farming.
How to prepare for potential changes
While no decisions have been made yet, the uncertainty surrounding APR is creating concern among farmers.
Here are some key steps farmers can take to prepare for potential changes to APR and inheritance tax:
Review your estate plan
Ensure your current estate plan takes into account potential changes to IHT reliefs.
We can help you to review your options and explore ways to protect your farm from the financial strain of IHT.
Consider business restructuring
Some farms may benefit from restructuring their business to take advantage of other tax reliefs or exemptions.
This could involve transferring ownership or exploring trust options that reduce tax liabilities.
Explore succession planning
Begin planning for the future by developing a clear succession plan for your farm.
This includes identifying successors and ensuring they are prepared to take over the business, as well as considering alternative strategies to fund potential IHT bills.
Keep up to date on policy changes
Stay informed about potential changes to APR as they develop.
By keeping up to date with Government policy, you can be better prepared to make adjustments to your tax strategy and estate planning.
If you are concerned about how potential changes to APR might impact your farm, our team of tax specialists is here to help.
Contact us today to discuss your options and ensure that your farm is protected from future tax liabilities.