British farmers and landowners are facing tough questions around the future of their businesses, following changes to inheritance tax reliefs available on their estates.
The changes to Agricultural Property Relief (APR) and Business Property Relief (BPR) dramatically alter how farmland and family-run businesses are passed down to future generations, with forward thinking on succession planning more important than ever.
Thrings’ Private Client Partner Sam Doherty takes a look at what you need to know.
What are APR and BPR, and what is changing?
APR is an inheritance tax (IHT) exemption that reduces the amount payable on the value of agricultural land and property, whilst BPR provides a similar exemption for business assets – which can be equally vital for farming businesses.
Currently, the two reliefs reduce the taxable value of the estate by up to 100%, provided the criteria is met. This means that when a farming business passes on, the heirs can inherit the land and businesses assets without the need to pay significant inheritance tax – something that would otherwise be unaffordable for many families who rely on the land for their livelihood.
This is set to change following last year’s Autumn Budget where it was announced that from April 2026, only the first £1million of any qualifying farming estate or business receives the 100% relief. Any qualifying assets over that threshold will be subject to a 50% relief - an effective tax rate of 20%.
The changes are currently going through consultation, so we are still waiting on the final detail but it is clear that farmers need to be more prepared than ever before with their succession plans.
What can farmers and landowners do?
With a substantial burden of inheritance tax currently facing farming families, the future for many businesses will be challenging. But it isn’t all doom and gloom, with some options available to help lighten the load:
- Start your succession planning early: It is more important than ever for farmers to start planning ahead. By being proactive, you can put your estate in the best possible state to be passed to the next generation in the most tax efficient way. Start having discussions with the family early so that everyone knows what to expect.
- Gifting: One such option is to ‘gift’ parts of your estate to the next generation. Provided that you survive seven years from making the gift, the asset will be outside your estate from an inheritance perspective. You need to be careful of the gift with reservation of benefit rules, so planning is vital.
- Prepare the next generation: For families hoping to pass on their farm or business to the next generation, you need to make sure the next generation is as prepared as possible. If absolute gifts are made, then consider pre or post-nuptial agreements to ensure the estate is protected. Also consider life insurance policies to try and protect against the IHT bill.
- Review the business structure: Carrying out a regular review of your business is a good way of keeping your succession plan up to date. Do your documents work with your Will, is it possible to leave the assets to the beneficiaries you intend. Would certain business structures enable you to gift assets without losing control or incentivise the next generation.
- Assess diversification plans: If your farming operation includes diversification into other areas, such as tourism, renewable energy, or property rental, you may need to reassess how these activities are structured as, for BPR to apply, your core business must be wholly or mainly trading.
- Stay informed and seek advice: Whilst the changes being imposed are the same for all farms and estates, the impact these will have will vary in each individual case. As time goes by, further changes might also be introduced that could complicate matters further. As such, it is important to seek legal advice that can help keep your business and your assets protected from massive tax costs, should the unexpected occur.
Thrings’ Private Client lawyers are experts in supporting individuals and families with a range of personal matters that are important to you. Whether it relates to a family business, land or private wealth, their expertise is there to help plan ahead in all areas ranging from succession planning and trusts, to wealth management, Wills and probate. To find out more, please get in contact.
