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Recent changes to inheritance tax (IHT) rules proposed in the October budget have sparked widespread concern among farmers across the UK, with 20,000 farmers protesting alongside influential figures such as Jeremy Clarkson in London this week.
With agricultural property relief set to be capped at £1 million from April 2026, many farms that were previously exempt will now face significant tax liabilities. This blog outlines the implications of the changes and strategies farmers can consider to protect their estates for future generations.
The Labour Party's proposed reform to agricultural property relief (APR) represents a seismic shift for the farming community. Until now, qualifying agricultural and business properties were fully exempt from inheritance tax. This allowed family farms to pass seamlessly between generations without the burden of a hefty tax bill.
From April 2026, however, the exemption will be capped at £1 million. Assets exceeding this threshold will face a reduced IHT rate of 20% (down from 40%). While the government estimates only 500 farms will be affected, experts suggest the figure could be as high as 70,000. For many, the £1 million cap doesn’t reflect the true value of modern farms, which often encompass land, buildings, machinery, and livestock well above this figure.
Farms are often family-run operations passed down through generations. The sudden imposition of inheritance tax creates immediate challenges:
While the proposed legislation poses challenges, there are steps farmers can take to mitigate its impact:
The nil-rate band (£325,000 each) and the residence nil-rate band (£175,000 each) allow farmers to pass on assets to the next generation free from IHT. However, estates exceeding £2 million may lose some or all of the residence nil-rate band.
Married couples benefiting from agricultural property relief can potentially pass on up to £2.65 million. This is made up of two nil-rate bands (£650,000) and agricultural property relief up to £2 million (£1million each).
Placing assets into trusts can shield them from inheritance tax. While this may not work for operational farmland, it could apply to certain other assets. Seek professional advice to understand the implications for your estate.
Gifts made during your lifetime may be exempt from IHT if you survive for seven years after making them. This strategy requires careful planning and consideration of your financial needs. It is also possible to take out life insurance to cover the seven-year period.
A whole-of-life insurance policy can be a practical solution to cover inheritance tax liabilities. Here’s how it works:
For example, if your estate is worth £4 million, with £2.65 million exempt, the remaining £1.35 million would attract a 20% IHT rate, resulting in a £270,000 bill. A joint-life insurance policy could cover this liability, potentially costing significantly less over your lifetime.
Delaying estate planning could leave your family exposed to significant financial strain. Early action allows you to explore options and put measures in place to protect your assets. With expert guidance, you can minimise the impact of these changes and secure the future of your farm.
Navigating inheritance tax complexities requires professional advice tailored to your unique circumstances. Independent financial planners, like Wealth of Advice, specialise in IHT solutions for farmers and business owners. By conducting a full review of your assets and reliefs, they can identify strategies that best align with your goals.
The proposed inheritance tax changes present significant challenges for farmers, but with proactive planning, their impact can be mitigated. Whether through optimising reliefs, exploring trusts, or utilising insurance, there are solutions to preserve your farm’s legacy.
If you’re concerned about how these changes will affect your family, contact Wealth of Advice for a free consultation. Together, we can develop a plan to protect your farm for future generations.
If you want a better view of what your future could be, we'll have a chat over a cup of coffee in our Durham office and work out if we can add any value to your financial picture.
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