Draft Legislation Published  – Changes to Inheritance Tax and Their Impact on Agricultural Businesses

On the 21^st of July the draft Legislation was published confirming the intended changes to Inheritance Tax (IHT) policies announced in the UK are expected to have significant consequences for agricultural businesses and farmers. These reforms, part of the 2024 Autumn Budget, aim to increase government revenue while promoting environmental sustainability but have sparked concern in the farming community.

Here’s a link to the draft Finance Bill covering Inheritance Tax.

Key Changes to Inheritance Tax

• Capping Agricultural Property Relief (APR): Starting April 2026, 100% APR will only apply to the first £1 million of an estate’s agricultural and business assets. For assets exceeding this threshold, the relief rate drops to 50%, with the remainder subject to the standard IHT rate of 40%. For example, a farm valued at £2 million would incur a £200,000 tax on the taxable portion above the threshold.
• Environmental Land Incentives: From April 2025, land involved in government-backed environmental schemes (such as conservation or regenerative agriculture) will be eligible for APR. This encourages eco-friendly farming but could create challenges for traditional farming models.
• Adjustments to Business Property Relief (BPR): Similar to APR, BPR will see reduced relief rates for non-listed business shares and assets over £1 million, impacting business owners in agriculture and beyond.

Impact on Farmers and Agricultural Businesses

• Financial Strain on Family Farms: Many farms are asset-rich but cash-poor, relying on land value to sustain operations. With an average farm value of around £3 million, families could face tax liabilities of £400,000 or more upon inheritance. This is expected to force many families to sell parts of their land or incur debt to meet tax obligations, threatening long-term farm viability. Up to 70,000 farms could be affected, potentially reducing agricultural productivity.
• Reevaluating Succession Planning: Farmers will need to revisit their succession strategies to minimize tax burdens. This may involve restructuring business ownership, gifting assets during their lifetime, or exploring exemptions under the new APR rules. 
• Support for Environmental Schemes: While the inclusion of environmentally focused land under APR is a positive development, some farmers worry that this shift might not align with all agricultural practices, particularly for food production.

Future Steps
Solicitors who have agricultural law expertise can play a vital role in helping farmers navigate the complexities of these inheritance tax reforms. Our team can assist with reviewing and restructuring business and property ownership to maximise eligibility for tax reliefs such as Agricultural Property Relief (APR) and Business Property Relief (BPR). We can also advise on succession planning, including lifetime gifting strategies and the preparing wills to ensure assets are transferred efficiently to the next generation. Furthermore, we can provide guidance on compliance with new APR provisions, such as incorporating land under environmental schemes to qualify for relief. The Hibberts team can help ensure that legal and financial risks are minimised while safeguarding the long-term viability of your farming enterprises.

For support on this significant policy change, the Hibberts team can help families and businesses adapt to the new landscape.