What the Tenant Farmers Association’s IHT compromise could mean for your farm’s tax planning

By Heather Bright, Partner and ARA specialist

The Government’s proposed changes to Inheritance Tax (IHT) on farm assets have sparked major concerns across the agricultural sector.

While the stated aim is to close tax loopholes for wealthy investors, many tenant and family farmers fear that these reforms could have serious financial consequences for their businesses.

In response, the Tenant Farmers Association (TFA) has put forward a compromise package, suggesting ways to refine the proposals while still raising revenue for public services.

These suggestions, outlined in a new briefing document, aim to protect smaller family farms from excessive tax burdens.

At this stage, it is important to note that these are all just proposals.

There is no guarantee that the Government will adopt them, nor that the original IHT reforms will come into force as currently outlined.

However, farmers should stay informed and consider how these potential changes could impact their tax and succession planning in the future.

Key proposals from the TFA

The TFA has suggested several key amendments to the Government’s IHT plans, including:

• Raising the IHT-free threshold for Agricultural Property Relief (APR) and Business Property Relief (BPR) from £1 million to at least £2 million.
• Allowing spouses and civil partners to transfer their combined APR/BPR allowances without needing to be joint holders of farm assets before death.
• Increasing the threshold for the residence nil-rate band (currently £175,000 and reduced for estates worth over £2 million) to at least £5 million.
• Exempting land let for ten years or more from IHT to encourage long-term tenancy agreements.
• Reducing the survivorship period for older farmers (aged 70 or over by April 2026) so that they only need to survive one year after passing on assets, rather than the usual seven.

These measures are intended to provide a fairer approach that acknowledges the unique financial challenges faced by farmers, particularly those looking to pass their businesses down to the next generation.

What does this mean for farm tax planning?

While these proposals are not yet law, they raise important considerations for farmers thinking about their long-term tax strategy. Here’s what to keep in mind:

• The debate over IHT reforms is ongoing, and it is important to follow updates to understand how any final decisions might affect you.
• If you plan to pass on your farm, consider whether any changes, such as restructuring ownership or making lifetime gifts, could help reduce potential tax exposure.
• Check your eligibility for APR and BPR. Even under the current system, ensuring you meet the requirements for these reliefs is essential for managing your estate’s tax position.
• With uncertainty over IHT reforms, consulting our specialists can help you assess your options and prepare for potential changes.

For now, these are just proposals, but they highlight the importance of proactive tax planning for farmers.

If you are concerned about how future IHT changes could affect your business, our team is here to help. Contact us today.