Inheritance Tax for farmers
Inheritance tax for farmers can be complex. Learn how to reduce liabilities with strategies like APR, BPR, gifting, and trusts.
From April 2026, the government will restructure APR to ensure that a "small number of claimants" pay their share of inheritance tax (IHT). Nevertheless, despite strong opposition to the proposed changes to Agricultural Property Relief (APR), only 158 farms accounted for two-thirds of the tax relief claimed in 2022, according to The Institute for Fiscal Studies.
Inheritance Tax for Farmers Challenges and Opportunities
The Institute for Fiscal Studies (IFS) estimates that these changes could impact up to 500 estates annually (around 29%). However, this figure does not account for potential behavioural adjustments following the Budget announcement. Meanwhile, the National Farmers’ Union has challenged the government’s calculations, arguing that up to two-thirds of farming estates are valued at over £1 million and will, therefore, become liable for inheritance tax (IHT).
Starting in April 2026, the government will restructure Agricultural Property Relief (APR). Specifically, the changes aim to ensure a “small number of claimants” pay their fair share of IHT. Consequently, these adjustments underscore the increasing complexity of inheritance tax for farmers, as government data estimates that fewer than 500 farms will face these new rules each year.
Furthermore, from 6 April 2026, full 100% IHT relief will apply only to the first £1 million of combined agricultural and business property. Nevertheless, farmers can still utilise spousal exemptions, nil-rate bands, and gifting allowances. Additionally, ownership structures may enable some farms within estates to claim these reliefs multiple times.
Inheritance Tax for Farmers and Relief Maximisation
Farmers can reduce inheritance tax (IHT) by maximising Agricultural Property Relief (APR). To access APR benefits, farmers must actively use agricultural property for farming and structure ownership to meet eligibility criteria. Converting non-agricultural land or buildings into qualifying agricultural use can also improve APR eligibility. Additionally, Business Property Relief (BPR) may apply if the farming business is actively trading rather than focused on investment activities.
Under the new IHT rules starting in April 2026, estates will qualify for up to £1 million in relief. For couples, this threshold could double to £2 million, providing significant tax savings when transferring the estate.
Farmers must plan carefully to fully utilise these relief thresholds, ensuring they can pass on their estate with reduced or no IHT liability. Proper planning can significantly reduce or eliminate the IHT burden on farming estates.
Gifting Assets, Estate Planning, and Trusts for Farmers
Gifting assets during one’s lifetime can reduce inheritance tax (IHT), as gifts are exempt if the donor survives for seven years. Establishing partnerships or limited companies simplifies succession planning and ensures the farming business qualifies for tax relief. However, non-agricultural assets like rental properties may not qualify for Agricultural Property Relief (APR) or Business Property Relief (BPR), requiring careful consideration. Farmers can reduce IHT exposure by gifting or reinvesting such assets.
Farmers can also use family trusts to transfer asset ownership gradually, managing tax liabilities while maintaining control over the estate. Trusts offer flexibility, allowing assets to be distributed over time, easing succession.
Careful planning and accurate record-keeping are vital to ensure eligibility for APR, BPR, and other reliefs, particularly during an HMRC review. With effective strategies, farmers can ensure smooth asset transfers and reduce the overall tax burden.
Diversification and Professional Advice
Diversifying farm activities, like holiday lets or renewable energy projects, requires careful planning to maintain APR or BPR eligibility. We strongly recommend consulting a Qualified Accountant to adapt to evolving tax rules and optimise IHT strategies.
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Disclaimer: The content included in this blog post is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so it should not be relied upon. You are responsible for complying with tax law. Individual circumstances do vary, and if you feel that the information provided is beneficial, you must seek professional independent advice. If you take action as a result of reading this article before receiving our written endorsement, we do not accept any responsibility for any financial loss incurred.
About the author: Tom Lowe is a qualified, certified accountant and the director of ABS Accountancy. With a strong expertise in financial management, he has developed a specialised interest in tax, offering valuable insights and guidance to clients. His professional background reflects a deep commitment to delivering high-quality accounting services with a focus on tax optimisation and compliance.
