One thing is certain and that is good Inheritance Tax planning is now essential.
On the 30th October, many tuned in to watch the Chancellor of the Exchequer, Rachel Reeves deliver the first Labour Governments Budget in 14 years. The principal concerns from the rural community were specifically relating to Agricultural Property Relief (APR) and the Sustainable Farming Incentive (SFI), launched under the Environmental Land Management (ELM) Scheme, which as I have written about in previous additions of the Magazine and replaced the now de-linked Basic Payment Scheme (BPS).
The announcement made by the Chancellor became a daunting reality for farmers and landowners alike. From April 2026 Agricultural Property Relief (APR) and Business Property Relief (BPR) will be subject to a 20% Inheritance Tax liability on any assets exceeding £1million, for which any assets in excess of this amount will be subject to a 50% IHT Liability, thus 20% of the value.
Agricultural Property valued under £1million is exempt. The Chancellor claimed this would help protect the small farms, however, even in my short career as a Rural Surveyor, I am still yet to visit any ‘small farms’ worth less than £1mil, thus this exemption is clearly insufficient. The result being that nearly all farmers can now expect an IHT liability that will apply not only to charges on death but lifetime transfers into trusts or to individuals unless they are able to structure or gift their assets to the next generation appropriately. Those farms which have diversified, or include amenity / development land will be especially affected by these measures.
Rachel Reeves defended the APR introduction by stating only 6% of agricultural estates will pay IHT this year, and whilst agricultural property has historically attracted investment buyers, due to its favourable tax exemptions, it is also the only reason, the hard working family farm has been able to survive, but also hand over their assets to the next generation. It comes back to the well-known statement of agricultural businesses being ‘asset rich, cash poor,’ however, it is a fear that these businesses are at risk of becoming ‘asset poor, cash poor’, as they may be required to sell land to pay the tax bill.
There is also the concern surrounding land values, which may stagnate/decrease due to the reduction in desirability from the investment buyer, this can have knock on effects for businesses that have borrowed money from the bank, with a charge taken over their land, which may now reduce in value.
The Country Land and Business Association (CLA), which represents thousands of farmers and landowners, estimates that capping agricultural property relief at £1m could impact 70,000 UK farms, in turn 'damaging family businesses and destabilising food security'.
It appears that the farming sector, which has already faced a number of unprecedented changes in the past few years, is going to face a whole new set of extraordinary challenges in the upcoming years. Whilst the intention of the Chancellor was to protect the family farm, it appears the plan was careless, as we may be set to watch the downfall of the family farm in the UK, which could be completely obliterated in a generation.
Overall, the budget seems to hit the farming sector hard, together with wage rises, added costs to businesses that apply across the economy and the freezing of the Department for Food and Rural Affairs (DEFRA’s) budget for farming at £2.4billion (a cut in real terms), these policies raise serious questions about the future of British food security and the impact on food supply and prices.
Our advice is to start planning now so please talk to Rob Jones or one of his colleagues in our Rural Professional department, call 01373 831010.