Inheritance tax reliefs for farmers and landowners

The changes to inheritance tax (IHT) reliefs for farmers and landowners, announced by the Chancellor on 30 October 2024, will have a considerable impact on plans for succession. These changes, effective from 6 April 2026, impact the way agricultural property relief (APR) and business property relief (BPR) are applied, particularly with the introduction of a cap on the amount that qualifies for 100% relief.

Significant changes in succession planning

Historically, farmers could pass qualifying assets to the next generation upon their death, benefiting from full APR or BPR, which allowed the land and assets used in the business to transfer free of IHT. However, with effect from 6 April 2026 gifts by an individual will be subject to a combined cap of £1 million on the amount that will qualify for 100% relief.  Any qualifying assets exceeding this cap will only receive 50% relief, resulting in an effective IHT rate of 20%.

The cap will also apply to any lifetime gifts made on or after 30 October 2024 where the donor dies after 5 April 2026 and within seven years of the gift.

Advice immediately following the Budget was not to take hasty action. The changes announced were not yet law and HMRC was to publish a technical consultation and further detailed guidance of the proposals.

What is known

A consultation on the interaction of the IHT reforms with both existing and new trusts was published on 27 February 2025 and ran until 23 April 2025.  We now await the Government’s response to the results of the consultation and the publication of draft legislation. As such certain elements of the proposals remain at best uncertain.

What is clear from the proposals is the following:

• The £1 million allowance will be applied against the death estate and gifts in the seven years before death
• The allowance refreshes every seven years for lifetime gifts but is not currently transferable between spouses or civil partners
• Trusts established before 30 October 2024 will have a £1 million allowance, which will not be subject to the cap until the first 10-year anniversary after the Budget date. For trusts created on or after 30 October 2024, the £1 million allowance will be shared among the trusts

Planning for the changes

There is sufficient clarity to now consider taking steps to mitigate the impact of these changes, including:

1. Lifetime gifting: As the £1 million allowance refreshes every seven years, lifetime gifting to the next generation should be a crucial part of IHT planning. Transfers of assets between spouses are exempt from IHT and can be made free of capital gains tax (CGT). This ensures that both spouses can benefit from the £1 million allowance.
2. Reviewing trusts: Existing trusts should be reviewed to determine whether qualifying assets should be transferred out of the trust before the next 10-year anniversary, free of IHT.
3. Updating Wills: Wills should be reviewed to ensure that they are structured to maximise relief on death and prevent the wastage of allowances. Detailed advice should be sought before any action is taken to avoid potential pitfalls.

Valuation and payment of IHT

Valuation will be key to any planning and should be instructed before making any gifts. Despite best efforts, it may not always be possible to reduce IHT liability to nil. The consultation confirmed that where IHT is payable on assets qualifying for APR/BPR, the liability may be paid in ten annual interest-free instalments.

How we can help

The changes to IHT reliefs for farmers and landowners represent a significant shift in succession planning. By understanding the new regulations and taking proactive steps, such as lifetime gifting, reviewing trusts, and updating wills, farmers and landowners can mitigate the impact of these changes. As always, detailed advice should be sought to navigate the complexities of tax planning and ensure compliance with the new rules. It is also important to remember that tax is only one of a number of factors to consider when planning for the succession to family-owned property, businesses and wealth.

To discuss these issues, contact a member of our expert team today or email alison.pryde@andersonstrathern.co.uk