Inheritance Tax changes – Why farmers are still fighting for fairness and what you can do

The recent overhaul of Inheritance Tax (IHT) rules, announced in October’s Budget, has caused considerable concern for farmers, with the planned removal of 100 per cent Agricultural Property Relief (APR) expected to expose a growing number of farms to tax bills.

From April 2026, farmers will no longer benefit from the complete exemption under APR.

Instead, they will be subject to a £1 million exemption threshold and a reduced 20 per cent IHT rate thereafter.

The challenges do not end there. Inflation has driven up land values, further eroding the effectiveness of frozen reliefs such as the £325,000 nil rate band, which has remained unchanged since 2009 and is now frozen until 2030.

This means the nil rate band has not increased for 21 years, despite the rising cost of farmland.

For example, in 1992, the nil rate band could shield 56 acres of typical farmland. Today, it protects just 29 acres, leaving more farms exposed to tax.

The Central Association of Agricultural Valuers (CAAV) has raised alarms, suggesting that an estimated 19 per cent more farms will face IHT charges than Treasury forecasts indicate.

This oversight largely stems from an underestimation of the number of claims made under Business Property Relief (BPR) and the true value of those claims.

What farmers can do to prepare for IHT changes

The changes to APR and IHT are of course problematic, but with careful planning, farmers can mitigate their impact.

Start by gaining a clear understanding of your estate’s potential IHT liability under the new rules.

This involves calculating the value of your farmland, buildings, machinery, and any other assets.

Keep in mind that inflation may have increased the value of your property significantly over the years, pushing it above the new £1 million exemption threshold.

We can help provide detailed calculations and identify areas where reliefs or exemptions may still apply.

Understand the scope of available reliefs

Although full APR will no longer apply in some cases due to the £1 million lifetime threshold, reliefs like BPR may still be relevant for certain assets, provided the combined APR and BPR reliefs do not exceed this limit.

For example, assets used in diversified farming activities, such as holiday lets, renewable energy installations, or direct-to-consumer businesses, could qualify for BPR, but the same threshold applies.

Reviewing how your assets are categorised can help identify areas where tax relief might still reduce your exposure, though options are increasingly limited under the new rules.

Consider diversifying your farm’s operations

In the face of rising costs and reduced reliefs, diversification can be a key strategy for improving financial stability.

Many farms are supplementing traditional farming income with activities like renting out holiday cottages, establishing farm shops, or generating renewable energy.

While these activities provide additional income streams, they may only qualify for BPR if they meet the necessary trading criteria and fall within the combined £1 million threshold for APR and BPR.

Reviewing your assets and activities is essential to identify any potential Inheritance Tax relief under the new rules.

Plan for succession

Succession planning has always been a crucial part of farm management, but it is now even more important given the upcoming tax changes.

Passing your farm to the next generation in a tax-efficient way requires careful consideration of options such as gifting assets during your lifetime or setting up trusts.

Each approach comes with its own tax implications, so professional advice is essential to ensure the chosen strategy suits your family’s unique circumstances.

Review your pension arrangements

Recent changes to IHT mean that unused pension funds will be included as part of your taxable estate from April 2027.

This change could impact the overall tax efficiency of your estate.

By reviewing your pension arrangements and personal assets, you can explore strategies such as gifting or trusts to help reduce the taxable value of your estate and minimise IHT liabilities.

Maintain up-to-date valuations

Regularly updating the valuations of your farmland and other assets is essential for accurate tax planning.

Land values can change constantly, and outdated valuations may result in an inaccurate estimate of your IHT liability.

Professional valuations provide a reliable foundation for making intelligent financial decisions and ensuring your estate is not overvalued for tax purposes.

Participate in advocacy efforts

While financial planning is vital, collective action is also key in ensuring farmers are treated fairly under the new IHT rules.

Organisations like the National Farmers Union (NFU) are actively lobbying the Government to review the impact of these changes and provide greater consultation.

Joining these efforts and attending events like the upcoming National Day of Unity on 25 January 2025 can amplify your voice and push for reforms that better support the farming community.

We are committed to helping farmers protect their livelihoods and their legacies.

If you are concerned about how these changes will affect your farm, contact us to arrange a consultation.

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