For decades, agricultural property relief (APR) and business property relief (BPR) have enabled farmers and other businessowners to pass their business to the next generation without any inheritance tax (IHT).
Following Labour’s budget, it has been announced that from April 2026, the existing rate of 100 per cent relief will continue for the first £1m of combined value of most agricultural and business assets and values above this cap will see the relief reduced to 50 per cent.
The government has expressed its view that the proposed measures will “help to protect family farms and businesses” but the suggestion that most farms across the country are not worth over £1m and will not be impacted by these changes is perhaps optimistic. In addition, farms are often ‘asset-rich’ but ‘cash-poor’, and so settling an IHT charge could prove difficult. As such, it is expected that farms will be particularly impacted by the change.
While the new rules will undoubtedly present a challenge for many, there may be options to mitigate exposure, such as through well-timed succession planning. The first step in each case should be to take stock of farming and business assets and review existing arrangements with a view to decide on a strategy to manage exposure. Impacted individuals may wish to consider steps to transition assets to a younger generation, the utilisation of trusts, or life assurance to cover potential costs.
In making decisions on any action, affected individuals will also need to consider factors such as the affordability of gifts, potential of exposure to capital gains tax, and other “commercial” factors in passing on ownership of a business.
Affected individuals should also take note that in some cases action may be needed by April 2026 to have the full range of options available.
The government predict that almost three-quarters of estates claiming APR and the majority of estates claiming BPR in 2026/ 27 will be unaffected by these reforms. While that may be the case, it is important that families review their affairs and put in place succession plans to manage any potential IHT liability that may now be faced.
Douglas Sinclair is a Partner in the Private Wealth and Tax Team
Erin Ryan is a Solicitor in the Private Wealth and Tax Team
Partner Content in association with Shepherd and Wedderburn.