The Government has recently announced a reversal of its proposed reforms to Inheritance Tax (IHT) reliefs affecting farmers and rural businesses, following significant concern from the agricultural sector.
Earlier proposals sort to restrict scope of agricultural property relief (APR) and business property relief (BPR), two longstanding IHT reliefs designed to protect family farms and trading businesses from Inheritance Tax on succession. Under the original plans, a greater number of farming estates would have faced Inheritance Tax charges, raising fears that families would be forced to sell land or assets simply to meet tax liabilities.
These concerns were particularly acute for farming businesses that are asset rich but cash poor, where land values are high, but income levels remain modest. It was the opinion of some industry bodies and professional advisors that the proposals risked undermining the continuity of family run farms and rural enterprises.
Following sustained pressure from the farming community, the Government has now revised its approach. The updated proposal significantly increases the value of qualifying agricultural and business assets that can be passed on with full Inheritance Tax relief. As a result, the majority of family farms are expected to remain outside the scope of Inheritance Tax on death.
The key changes are as follows:
- The value of qualifying agricultural and business property that can pass for Inheritance Tax relief has been increased to a much higher threshold than originally proposed.
- When combined with transferable allowances between spouses or civil partners, this means that a farming family may be able to pass on up to £5 million worth of qualifying assets free from Inheritance Tax.
- Where the value of qualifying assets exceeds the available relief, Inheritance Tax will apply at a reduced rate of 20%, rather than the standard 40%.
- The government has indicated that, as a result of these changes, the majority of family farms will not be affected by Inheritance Tax on death.
The revised approach is intended to protect genuine family farming businesses while ensuring that very large estates make an appropriate contribution to the tax system.
The above changes are expected to be introduced during the Finance Bill and will apply from April 2026 subject to legislation.
In light of the above developments, farmers and rural business owners are advised to review their Estate and succession planning arrangements. Existing Wills, partnership agreements, ownership structures and lifetime planning strategies may benefit from reassessment to ensure that available relief is maximised and that future generations are protected from unexpected Inheritance Tax liabilities.
Early advice is particularly important where land values are high, owner structures are complex or succession planning has not been reviewed for some time.
If you would like advice on Inheritance Tax planning, agricultural property relief or succession planning for farming families, please contact us on 01279 295047 or complete our contact form and we will be in touch.