Whilst possible changes to Agricultural Property Relief had been flagged before the new Chancellor’s budget on 30th October last year, the scope of the changes affecting farmers and landowners was far beyond most people’s fears, and many could be forgiven for feeling unfairly targeted by these changes. Looking forward, the new government have gone out of their way to say that they need more tax receipts and are looking at wealth rather than income to deliver this. So there may be more unwanted changes still to come.

The main changes that most farmers and landowners will be concerned about are as follows:

Agricultural Property Relief & Business Property Relief for Inheritance Tax

Nearly all farmers and landowners will have organised their capital tax planning on the expectation that they could leave land and certain other assets to the next generation free of Inheritance Tax (IHT), benefiting from 100% Agricultural Property Relief (APR) or, in many cases Business Property Relief (BPR) which could (in some cases) include other assets in addition to land, such as let houses and commercial property.

From 6th April 2026 each individual is expected to be able to claim these reliefs at 100% but only up to a value of £1m per individual, over and above their personal allowances. These personal allowances typically amount to £650k for a married couple, increasing to £1m in limited cases with the addition of the ‘residence nil-rate band’. A married couple may therefore expect to be able to utilise a total of up to £3m of allowances before any tax is due. Anything above these allowances would attract only 50% relief so, at current IHT rates would be subject to an effective tax rate of 20%. The total estate for tax purposes would include machinery, livestock, and harvested crops, so as has been pointed out by the NFU, CLA and Jeremy Clarkson even relatively small farms would be caught by the new regulations.

One of the additional benefits of the taxation arrangements before the budget related to Capital Gains Tax (CGT). Previously, assets were revalued on death and no CGT was chargeable. So, the vast majority of landowners and farmers could die safe in the knowledge that their heirs would have to pay no tax at all. No wonder so many people wanted to invest in land!

Whilst this budget change will have been an unpleasant shock for many, it should be remembered that assets can still be transferred free of IHT providing the donor survives 7 years (known as a ‘Potentially Exempt Transfer’). Given the inherent difficulties around managing succession for many families, these changes in taxation could well represent an opportunity for businesses to focus on a well-structured succession plan, put in place in good time to mitigate unnecessary taxation charges.

Many landowners, particularly those with larger holdings will have used trusts extensively to facilitate succession and tax planning without the perceived risks of handing assets to a younger, unproven generation. Moving some assets into a trust where children are too young to inherit outright or not yet sufficiently involved in the business to be involved with the management, may still be an option. However, it would appear that different trusts will be subject to different treatment under the new regulations and so trustees and affected landowners should seek advice from their accountants and other taxation advisors to assess the impact on their particular situation.

Capital Gains Tax
Whilst the increase in rates was probably less than many feared and the reliefs were left in place, the position relating to lifetime gifts to mitigate IHT needs to be very carefully thought through. Whilst business assets (e.g. land) might be subject to holdover relief, non-business assets such as houses might not. Anyone considering gifting potential development land should consider this very carefully before acting. Again appropriate advice should be taken before any action is taken.

Basic Payment Scheme
Hidden away in the drama of changes to Inheritance Tax was the announcement that tapered payment of BPS monies to farmers would be effectively capped for 2025 at £7,200. There has been no guidance as to payment levels for 2026 and 2027. This means that for example, a 500ha farmer who would have been expecting BPS payments of just over £73,000 over the next three years will receive just 10% of this. This will clearly further impact cashflows and profitability when many businesses will have been budgeting very small surpluses, if any for the coming year.

Other issues to consider in formulating plans to mitigate inheritance tax might be:

• ‘Reservation of benefit’: To qualify as exempt from IHT, lifetime gifts of assets need to ensure that the donor does not continue to benefit from transferred assets. This is particularly problematic in family farms where the donor requires income from the farm business after making the transfer.

 

• Letting land: Historically many landowners let land on longer term tenancies either to family partnerships or externally where legacy ownership is an overriding objective. This may become more popular again as the fall in asset value can further mitigate IHT exposure.
• Life Insurance: For younger business and landowners and indeed recipients of any lifetime gifts, arranging a life insurance policy to cover potential inheritance tax liabilities might be worth considering. These can be surprisingly affordable, particularly on a second death basis.

Some commentators have been warning of substantial falls in land values. Many of these warnings have been on the premise that large numbers of farmers will have to sell land to meet unaffordable IHT bills. This may unfortunately be the case for those that cannot safely transfer assets and survive seven years but many will be able to plan to avoid unwanted asset sales. However, it seems likely that those looking to invest monies into land to mitigate IHT might be more selective going forward.

It goes without saying that, in certain areas, Capital Gains Tax roll over relief and lifestyle buyers are still major contributors to demand. With 20% IHT relief, farmland will still be an attractive investment option for some higher net worth individuals.

So, whilst it is clearly an unpleasant feeling to be seemingly targeted by the new chancellor, most farmers and landowners will be able to mitigate the changes announced on the 30th October. This will require careful thought and planning but should really represent simply bringing forward an existing intention. Given then that it should be possible for most to plan to mitigate this tax, it does seem that those farmers who are too old to safely assume that they will survive seven years after the gift or, who die unexpectedly are going to be those that end up paying it rather than the people who the chancellor thought she was targeting. This does seem grossly unfair and it may be that the rules are amended before April 2026 to address this.

As always, taxation is complex and any action is likely to impact on a number of different tax types so professional advice should be sought at an early stage in any plan.

At Newton LDP we have a team who have advised farming and landowning clients for many years and continue to specialise in this area. Our team have the experience and expertise to help focus on the key issues but also consider the wider effect of any proposed changes on the business as a whole.

If you would like to understand more about the recent changes and look at your options to deal with them then please contact us for an initial discussion.