Inheritance Tax and the Family Farm: Could There Be Changes to the Changes?
Posted on in Tax, Trusts & Succession
Since the now-iconic farmers’ protests back in February, the debate about the government’s planned changes to Inheritance Tax, in particular Agricultural Property Relief (‘APR’) and Business Property Relief (‘BPR’), has rumbled on.
The Chancellor announced in the Autumn Budget that, from 6th April 2026, a new £1 million allowance would be introduced for successful APR and BPR claims. Above that amount, any relief for qualifying property would instead be given only at 50%, rather than 100%.
A recent report by the Centre for the Analysis of Taxation (‘Centax’) has revived farmers’ calls for a meeting with the Chancellor to discuss the likely impact of these changes on family farms in particular.
Centax has used HM Revenue & Customs data on Inheritance Tax from 2018-2022 to project not only the likely government income from the new regime, for 2027 onwards, but also to break down the impact of the changes on different types of claimant.
The full text of the report (all 135 pages) is available online here.
What does the report find?
In a conclusion which may be cold comfort to many, the report finds that the proposals will protect family farms ‘to a large extent’. Of course, even though it might be strictly possible for a farm to pay the Inheritance Tax bill over the ten-year instalment period, this does not make it easy, and there will still be many farms facing sale once the changes are in place.
The report considers that:
- Between 480-600 farm estates would have to pay additional tax. Here, a farm estate is defined as the estate of a deceased person containing farming assets.
- Of these, 205 (43% overall) may be ‘small family farms’, i.e. where the claim for APR and BPR relates to more than 60% of the total estate, which in itself is less than £5 million.
- Of the four ownership types defined by the report (owner-farmers, tenant farmers, mixed tenure, and landowners): Owner-farmers (17% of the total) represent 37% of the impacted estates. Landowners (64% of the total) represent 42% of the impacted estates.
- An estimated 86% of the total impacted estates could pay their Inheritance Tax bill out of non-farm assets.
There has the potential, then, to be a disproportionate impact on family farms.
What are the alternatives?
These impact assessments have resulted in the NFU calling afresh for a meeting with the Chancellor to consider the alternatives. And, in fact, the Centax report does indeed propose alternatives, which the authors calculate may still achieve the government’s aims.
These alternative proposals include:
- Allowing the £1 million allowance to be transferable between spouses, like the Nil Rate Band and Residence Nil Rate Band.
- If the aim is to recoup more tax from the wealthiest estates, to raise the allowance to £10 million, above which there is no relief.
- Restricting APR/BPR to cases where it accounts for at least 60% of the whole estate, to target the relief to family farms and businesses rather than investors.
With many calls for the government to reconsider their plans before the April deadline, we will see if there will be changes to the changes.
What can I do now?
In the meantime, especially with the speculation about further plans to reduce or restrict lifetime giving, it is all-important to consider your succession planning as soon as you can.
If you are concerned about how these proposals could affect you or your family, please contact our specialist Tax, Trusts and Succession team for tailored guidance.