Inheritance Tax (IHT) has long been a concern for farming families across England and Wales. With land values rising and farms often passed down through generations, the potential tax liability can be significant. Recent changes to the tax regime, particularly those introduced in the Autumn 2024 Budget, have made it more important than ever to understand how to mitigate IHT on agricultural property.
In this article, we explore the current rules, the recent reforms, and the practical steps farming families can take to reduce or avoid inheritance tax on farms
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Understanding Inheritance Tax on Farms
Inheritance Tax is charged at 40% on estates valued above the nil-rate band, which currently stands at £325,000 per individual. An additional residence nil-rate band of £175,000 may apply when passing on a home to direct descendants, allowing a couple to potentially pass on up to £1 million tax-free.
However, farms often exceed these thresholds, making reliefs such as Agricultural Property Relief (APR) and Business Property Relief (BPR) essential tools in estate planning.
Agricultural Property Relief (APR)
APR provides relief from IHT on the agricultural value of qualifying farmland and buildings. The relief can be either 100% or 50%, depending on how the property is used and who occupies it.
To qualify for 100% APR, the property must:
- Be occupied for agricultural purposes by the owner or a qualifying tenant.
- Have been owned and used for agricultural purposes for at least two years (if occupied by the owner) or seven years (if let).
APR applies to:
- Farmland
- Farm buildings
- Farmhouses (if they are of a character appropriate to the property)
However, APR only applies to the agricultural value of the property. Any development potential or non-agricultural use (e.g. holiday lets or commercial diversification) may not qualify.
Business Property Relief (BPR)
BPR can be used in conjunction with APR to cover aspects of the farm that fall outside the scope of APR, such as:
- Diversified business activities (e.g. farm shops, caravan parks)
- Shares in farming partnerships or companies
BPR also offers 100% or 50% relief, depending on the nature of the business interest. To qualify, the business must be a trading business, not one that mainly holds investments.
Key Changes from April 2026
The Autumn 2024 Budget introduced significant reforms to APR and BPR, effective from April 2026
100% IHT relief will be capped at the first £1 million of combined agricultural and business assets.
50% relief will apply to the value of such assets above £1 million.
AIM-listed shares and other unlisted investments will only qualify for 50% relief, regardless of value.
The nil-rate band (£325,000) and residence nil-rate band (£175,000) are frozen until 2029–30.
These changes mean that many farming estates previously exempt from IHT may now face substantial tax bills.
Practical Strategies to Reduce IHT on Farms
- Early Estate Planning
Start planning early. Transferring assets during your lifetime can reduce the value of your estate and potentially avoid IHT altogether if you survive seven years after the gift.
However, gifting farmland must be done carefully to avoid triggering Capital Gains Tax (CGT) or losing control of the business.
- Use of Trusts
Trusts can be an effective way to pass on assets while retaining some control. For example, a discretionary trust can hold farmland for the benefit of children or grandchildren, potentially removing it from your estate for IHT purposes.
Professional advice is essential, as trusts are complex and subject to their own tax rules.
- Maximise APR and BPR
Ensure that all qualifying assets are structured to benefit from APR and BPR:
Keep accurate records of land use and occupation.
Ensure farmhouses are used in connection with the farming business.
Avoid letting land on terms that disqualify it from relief.
Where diversification has occurred, ensure the business remains predominantly trading to qualify for BPR.
- Review Business Structures
Consider restructuring the farm as a partnership or limited company. This can help in succession planning and may enhance eligibility for BPR.
For example, bringing children into a farming partnership can allow for a gradual transfer of assets and responsibilities.
- Life Insurance
Taking out a life insurance policy written in trust can provide funds to pay any IHT liability, preventing the need to sell farm assets.
This is particularly useful where reliefs do not fully cover the estate or where liquidity is an issue.
- Succession Planning
Have a clear succession plan in place. This includes:
- A valid and up-to-date will
- Partnership or shareholder agreements
- Clear communication with family members
- Succession planning ensures that the farm continues to operate smoothly and that tax reliefs are not inadvertently lost.
Common Pitfalls to Avoid
Assuming all land qualifies for APR: Land used for non-agricultural purposes may not qualify.
Failing to meet occupation requirements: Letting land on short-term grazing licences may not satisfy the conditions for relief.
Neglecting diversification risks: If non-farming income exceeds 50% of total income, BPR may be denied.
Outdated wills or agreements: These can lead to unintended tax consequences or disputes.
At Blackstone Solicitors, we understand the unique challenges faced by farming families. Our experienced team offers tailored legal advice on:
- Estate and succession planning
- Trusts and tax-efficient structures
- Agricultural and business reliefs
- Drafting wills and partnership agreements
We work closely with accountants and land agents to ensure a holistic approach to protecting your farm for future generations.
Conclusion
The landscape of inheritance tax on farms is changing. With the April 2026 reforms set to limit reliefs, proactive planning is more important than ever. By understanding the rules, avoiding common pitfalls, and seeking expert legal advice, farming families can preserve their legacy and minimise tax liabilities.
If you would like to discuss your estate planning needs, contact Blackstone Solicitors today. We are here to help you secure your family’s future.
How we can help
We have a proven track record of helping clients deal with the legal aspects of commercial property and Agricultural law. We will guide you through the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.
How to Contact Our Commercial Property Solicitors
It is important for you to be well informed about the issues and possible implications of mitigating inheritance tax on your farm. However, expert legal support is crucial in terms of ensuring a positive outcome to your case.
To speak to our Commercial Property solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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