The Spring Budget of 2025 was a blow for many farming families and landowners because of its introduction of restrictive allowances on land and business assets that had previously had an unlimited allowance for inheritance tax.
It had previously been proposed that only the first £1 million of agricultural and business property can acquire a 100% relief from inheritance tax with the surplus value qualifying from a 50% relief (so an effective rate of 20% rather than 40% tax).
In the Autumn Budget 2025 and on 23 December; new more generous and ‘watered down’ tax plans have been proposed to be effective from 6 April 2026. The Government has announced that the individual threshold of £1 million will now be increased to £2.5 million. The last Budget had already confirmed that allowances can now be transferred between spouses or civil partners: so this means that spouses or civil partners can now pass on up to £5 million in assets that qualify for agricultural or business assets between them. Bringing a far more generous and no doubt welcome increase on assets that might have otherwise been taxable.
This will be in addition to the effective tax rate of 20% on assets over the £5 million allowance and other basic allowances including personal allowance (£325,000) and where relevant, transferable and residence nil rate bands (which as a broadbrush approach allow families to pass wealth of up to £1 million jointly down to direct descendants such as children).
Whilst the news is welcome, many families will still fall into the net, either because the assets exceed the allowance or because assets do not qualify. Ultimately, large tax burdens for farmers and landowners can create the need to sell land and create liquidity issues for working businesses.
It is therefore wise to consider tax planning from an earlier date, not only on death. When considering gifting and tax planning generally, we will consider all the implications for the family and business. There may be a risk of assets being dissipated on divorce, for example; this can all be taken into account in the way we structure for you. Trusts can still be a good option where some control of assets would be prudent to consider.
Often, in agricultural settings, farms are passed down to the next generation upon the death of the parents. However, given the recent changes in APR (Agricultural Property Relief), it might be wise to consider planning sooner.
Where HMRC have accepted that land meets the criteria to obtain relief under the APR regime, then there are no immediate tax charges for inheritance tax and there can also be reliefs available on capital gains tax (which is normally charged on disposal of land).
Equally, if the land is not fully relievable, consider the use of a PET (Potentially Exempt Transfer), where a lifetime transfer of an asset is made, and the donor survives the gift by seven tax years. If the donor dies within the seven years, then a taper relief applies to reduce the amount of tax payable. All of this can help to reduce the burden of tax which ultimately impacts the beneficiaries of an estate.
There are lots of options, but early planning and conversations with the family and other owners is key.
