FINANCE
Inheritance Tax changes to Impact Family-Run Farms
THE POTENTIAL MONETARY IMPACT OF THIS ANNOUNCEMENT AND HOW IT COULD MAKE A SIGNIFICANT DIFFERENCE .
By HAYLEY KINGSNORTH , PARTNER , AZETS , Hayley . kingsnorth @ azets . co . uk
There has been widespread concern from many farmers that selling up now may be preferential to a hefty inheritance tax bill later for their children . From April 2026 , agricultural and business assets worth over £ 1m that are inherited will no longer fully benefit from reliefs which could effectively exempt them from Inheritance Tax ( IHT ) and will instead be susceptible to an effective rate of 20 % ( due to reliefs being restricted to 50 % of the value in excess of the first £ 1m ).
Example assets * ( all held jointly between spouses , but passing to each other on first death )
• A 500-acre family farm
• Land and farm buildings valued at £ 6m
• The farmhouse valued at £ 500,000
• Cash savings of £ 100,000 * assumes the farmhouse does not qualify for APR .
Tax situation under current rules
Asset |
Value |
Relief |
|
|
applied |
Land and buildlings
£ 6,000,000 100 % APR / BPR ( Full Relief )
Taxable amount
£ 0
Farmhouse £ 500,000 None £ 500,000 Cash £ 100,000 None £ 100,000 Total estate £ 6,600,000 £ 600,000
NIL rate band applied
£ 650,000 £ 0
Outcome : No IHT liability ( taxable estate = £ 0 )
Change from April 2026
Asset |
Value |
Relief |
|
|
applied |
Land and buildlings
Outcome :
• Taxable estate ( after deducting the nil rate bands ): £ 2,450,000 .
• IHT liability : 40 % of £ 2,450,000 = £ 980,000 .
Not only is this a significant difference , but only having £ 100,000 of cash would likely mean that the house or some of the farm would have to be sold to pay the liability . HMRC has stated that the tax owed following the changes can be paid over 10 years , interest free , although this may not be much of a consolation for those impacted .
What to consider
£ 6,000,000 £ 1,000,000 @ 100 % relief £ 5,000,000 @ 50 % relief
Taxable amount
£ 0 £ 2,500,000
Farmhouse £ 500,000 None £ 500,000 Cash £ 100,000 None £ 100,000
Total estate
NIL rate band applied
£ 6,600,000 £ 3,100,000
£ 650,000 £ 2,450,000
For those with assets in excess of the £ 1m allowance , the initial thinking may be to sell land or borrow funds to pay the IHT bill , but there are other considerations beyond this as a means of mitigating the impact :
• A back to basics understanding of the business structure and land ownership so that there ’ s an awareness of where tax reliefs may apply .
• Review of partnership agreement and wills so that there ’ s appropriate passing on of assets upon death and allowances are maximised .
• Lifetime gifting rather than on death as a means of reducing an IHT bill .
• Similarly , strategic gifting – e . g . gifting core parts of a farm .
• Utilising the joint interest in land rules effectively .
• Use of trusts to support tax efficiency .
We are here to help
If you are operating in the agricultural sector and have concerns about how to deal with the inheritance tax changes or challenges generally , please get in touch .
Local Offices : Ashford : 01233 629 255 Canterbury : 01227 454 861 Maidstone : 01622 690 666 Orpington : 01689 827 505 Sandwich : 01304 249 997
www . azets . co . uk
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