Let's talk about the future of your farm, here's an unfortunate truth, Inheritance Tax (IHT) in relation to family farms is set to change significantly!
Depending on your circumstances it may force your family to sell up. It's a potentially hard reality, a way of life and something built over generations may no longer be in a position to endure. It's why you need to start planning today (if you haven't already done so), by asking yourself the following key questions:
Have you reviewed your estate to understand your current and future tax exposure?
Have you updated your will to reflect and plan for the upcoming legislative changes?
Agricultural Property Relief (APR) has existed for many years to protect farmers and land-owners. This tax mechanism was put in place to protect farmland, farmhouses, and buildings from being sold to pay for IHT obligations. Unfortunately, it is that very legislation that is now being reformed.
In this blog post I'll help you cut through the complex rules that surround both IHT and APR, and their interaction. Then by reading this you'll understand:
This post covers:
APR is a relief from Inheritance Tax that acts as a ring fence for farms. It applies specifically if you own qualifying agricultural property whereby it is used for one, or a combination of:
Where this is the case, use of APR can potentially reduce the taxable value of these assets by 100%!
Why does APR exist? It was created to ensure agricultural land and businesses could remain and trade through families, rather than having to be sold to pay H M Revenue & Customs (HMRC).
You can qualify for APR if:
100% relief - if you have land and property:
50% relief - this typically applies to older tenancy agreements, that usually began before 1 September 1995, and where the owner doesn't have vacant possession (namely it's not empty of people, livestock, equipment, and other agricultural related items).
To qualify, your property must be:
These rules are applied very strictly by the taxman. It's something you need to look out for as HMRC is known to challenge claims, particularly on farmhouses.
There are circumstances where APR and BPR can apply together, in some cases it's essential they do. Consider this example, let's say you have a working farm that also:
In this scenario, your estate is likely to qualify for a mix of APR on the agricultural land, and BPR on the business trading aspects and let property.
HMRC looks at the full picture in cases such as the above example, and applying the wrong mix of reliefs, or utilising them incorrectly can create tax issues. That's why tax planning, by consulting a professional, especially when things are diversified, is potentially critical.
From 6 April 2026 APR and BPR will be capped! Your 100% rate for relief from APR will be limited to the first £1m of combined agricultural and business assets. Any assets you own that qualify for APR or BPR above the £1m limit will then have a 50% relief applied to them.
The £1m allowance can't be transferred between husband and wife, or civil partners, but it does refresh every 7 years. You'll also have the option to pay any IHT due over 10 interest-free annual instalments and this covers assets qualifying for APR or BPR.
Also, from 6 April 2027 unused pension funds will be included in your estate when applying IHT. APR and BPR won't be allowed to be applied to any pension assets either.
Keep in mind also that IHT only applies after your tax-free allowance, known as the nil-rate band (NRB) of £325,000 is applied. If you're married or in a civil partnership then you can effectively pool your NRBs and double the allowance to £650,000.
Your family home can also potentially be applied if your passing the home on to children, or grandchildren in your will. Doing this through the main residence nil-rate band (RNRB) of £175,000 then potentially raises your individual NRB to £500,000. If you're in a couple and own the home then that doubles the NRB available to £1m in all.
However, if your estate is valued above £2m, this means that for every £2 more than this amount you lose £1 of the RNRB. If your estate is worth £2.35m, that then means the benefit you receive from the extra allowance is actually completely cancelled out.
You need to:
1. Understand your circumstances and tax-free allowance - are you married or in a civil partnership, can you pool your NRB? Do you own your main home together, can you combine your RNRB?
2. Value your assets - list out everything you own, all your assets, and calculate how much they're worth. Think properties, investments, savings, and debtors (money you're owed).
3. Calculate your liabilities - add up the total value of everything you owe which is likely to include personal loans, credit card debt, mortgage debt, unpaid bills, funeral expenses, and tax liabilities.
4. Value your estate - do the calculation of subtracting everything you owe from everything you own. That then provides the net current value of your estate and provides an indicator of whether IHT will be due.
5. Tax reliefs and IHT liability- determine which assets qualify for APR and BPR, and then apply the relevant NRB and RNRB to determine if, and how how much IHT liability your estate is exposed to.
This can get quite complex quickly, especially if you have multiple properties, pensions, or a diversified business.
Let's say you have a family farm valued at £4m, you and your spouse own your home, and you have updated wills.
Under the current rules:
So, without APR applied this means £3.35m of your assets (£4m minus the NRB of £650,000) will be exposed to 40% IHT, resulting in a £1.34m tax bill!
However, the qualified use of 100% APR under the current legislation means the farm can pass down tax-free to your children, the next generation. This is on the expectation of course that they want to continue running it.
Under the new rules from April 2026:
Again the pooled NRB of £650,000 is applied to reduce your potential tax exposure down to £3.35m. Then APR is applied to reduce it by another £1m. This means the remaining £2.35m benefits from 50% relief being applied resulting in £1.175m being subject to IHT at 40%!
Your estate would be hit with a £470,000 tax liability. The example shows how the new rules could mark a significant tax change for some people. To help alleviate the bill, the liability can be paid through 10 deferred annual payments, albeit they would be the considerable sum of £47,000!
From a planning perspective you need to therefore think very carefully about whether your farm has the ability to make the extra annual payments should IHT apply.
1. Estate planning
Review your estate from time to time for planning purposes especially if you're a married couple or civil partnership, your wills may need to be altered so that the £1m allowance of the first person to pass away doesn't go unused.
2. Lifetime giving
Gifting could become more important as this is a means to potentially reduce the value of your taxable estate. Tax free gifts can be extended to spouses, civil partners, and charities. You also have lifetime gifts and can give away surplus income, see the link for more information.
3. Pensions
Pensions used to be exempt from IHT which made them a potentially useful tax planning tool. From April 2026 they will be taxable on death. APR and BPR isn't applicable to assets held within them.
4. How will you settle the potential IHT bill
How might any additional IHT be funded per the above example. Selling assets can lead to a Capital Gains Tax charge for example. An option could be to consider taking out life insurance to cover IHT exposure.
There’s potentially plenty at stake here for some people given the rule changes coming. As with most matters taxation, there's a lot of nuance too. APR and IHT aren’t simple which means the time to act is now.
Tax planning is about understanding the system and how it applies to your circumstances. It provides a potential opportunity to put things in place so that the people you love don’t have to sell what you, and prior generations, worked so hard to build.
If this is relevant to you then you'll probably find that it pays to take professional advice.
The content of this post was created on 25/09/2025.
Please be aware that information provided by this blog is subject to regular legal and regulatory change. We recommend that you do not take any information held within our website or guides (eBooks) as a definitive guide to the law on the relevant matter being discussed. We suggest your course of action should be to seek legal or professional advice where necessary rather than relying on the content supplied by the author(s) of this blog.
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