Good news for farmers – but succession planning is still vital
Monika Bone, Partner at Wilkin Chapman Rollits, says the IHT relief relaxations were welcomed across Yorkshire’s agricultural community, but families need to plan carefully.
After months of concern, farmers were given reason to celebrate just before Christmas, with news that the proposed cap on full inheritance tax (IHT) relief for agricultural and business property has been significantly increased.
Previously, the Government had announced that 100% Agricultural Property Relief (APR) and Business Property Relief (BPR) would be capped at £1m. This cap has now been substantially raised to £2.5m per person, taking effect from 6 April this year.
While this development has been welcomed by the farming community, careful estate planning is still essential to ensure families fully benefit from the 100% relief available through APR and BPR.
What’s changed?
For decades, APR and BPR have allowed families to pass down their farming businesses without facing an IHT bill, providing 100% relief on qualifying assets, with no upper limit.
However, in its 2024 Budget, the Government proposed a cap, meaning only the first £1m of combined business and agricultural property per person would qualify for 100% relief. Any assets above that would receive 50% relief, leaving a significant portion of estates potentially subject to IHT for the first time in generations.
This left farming families pondering how they would settle a future tax bill if they did not have the cash reserves to cover it.
The good news is that, in response to concerns and lobbying from the farming community and groups such as the National Farmers' Union (NFU), the cap has now been increased to £2.5m per person, more than double the original proposal.
This change will reduce the number of farm and business owners potentially facing IHT bills and will undoubtedly help protect more family farms for the next generation.
How will this work in practice?
Consider the example of a farming company holding agricultural land and running the farming business from that land.
Let’s say the company is worth £2.5m and solely owned by one shareholder, Mr Smith (who is unmarried and has two adult children involved in the business). Mr Smith dies on 6 April 2026.
We will assume Mr Smith held the shares for a sufficient period to qualify for BPR when he died, and the company is wholly or mainly trading, and benefits from BPR at 100%. He owned no other assets.
Before the cap increase, on Mr Smith’s death, when the shares passed to his two children under his Will, those up to £1m in value would be fully exempt. The balance of the shares, a further £1.5m in value, would be subject to IHT. One half of this value would be relieved, reducing the amount chargeable to tax to £750,000.
Mr Smith’s nil-rate inheritance tax band (currently £325,000) could be used to reduce this chargeable amount further to £425,000, which would then be taxed at 40%.
This leaves an IHT liability of £170,000. How would that be paid? And what impact does it have on the future of the family business?
After the increase in the cap, that liability is wiped out and Mr Smith’s sons do not need to worry about how to pay an IHT bill.
Why careful planning is still essential
Despite the increased cap, real life and circumstances are complicated and careful estate planning is hugely important. The rules around APR and BPR are complex, and the risk of an IHT charge still exists for larger estates or those that simply don’t plan properly.
What you should do now
· Review and update your Will to distribute assets efficiently and maximise the reliefs available to you.
· Make sure you structure the ownership of your businesses correctly, particularly between married couples. Despite the cap being transferable between spouses (as announced in the Chancellor’s Budget in November 2025), there might still be planning opportunities on the first death.
· Consider lifetime gifts or trusts to help reduce the taxable value of your estate. But remember, careful planning is required to avoid unintended consequences.
The changes to IHT will take effect on 6 April, so now is the time to review your estate planning and secure your family’s future. Speak to our agriculture team today.
Tel: 01904 688513, email [email protected]