The recent Budget, led by Chancellor Rachel Reeves, has introduced major changes to inheritance tax (IHT) reliefs, sparking widespread concern among farmers and small business owners. The alterations slash the long-standing 100% agricultural property relief (APR) and business property relief (BPR) to just the first £1m of value. Above this threshold, qualifying assets will now attract only 50% relief, creating an effective IHT rate of 20%.
Impact on farmers and small businesses
Farmers are uniquely vulnerable to these changes, as many work until the end of their lives, passing their farms directly to the next generation. Unlike other small business owners who may sell or close their businesses before retirement, farmers are more likely to face the full brunt of these IHT changes. Although small business owners are often more preoccupied with capital gains tax (CGT), the looming IHT liabilities shouldn’t be underestimated.
Criticism from industry bodies
The policy has faced backlash from key farming organisations, including the National Farmers Union (NFU), the Country Land and Business Association (CLA), and the Tenant Farmers Association (TFA). They warn that the changes will dismantle family farms and jeopardise the UK’s environmental and food production goals. Protests are underway, and a major march on Parliament occurred on 19 November. Despite this, the Treasury has confirmed that no amendments will be made.
Planning for the April 2026 deadline
The changes, effective from April 2026, could leave families scrambling to restructure land and assets to minimise future IHT liabilities. However, the Chancellor claims that 75% of farms and estates remain unaffected. The £1m threshold may only cover smallholdings, exposing genuine trading farms to significant tax burdens.
Farmers must now prioritise the £1m limit in their planning. The relief applies in addition to existing nil-rate bands, and transfers between spouses or civil partners will remain tax-free. However, the allowance is not transferable, meaning unused reliefs cannot be passed to a surviving partner.
Broader tax implications
In addition to the IHT changes, the Budget has frozen personal nil-rate bands until 2030. Estates under £325,000 will remain IHT-free, and this can rise to £500,000 with the residential nil-rate band if a home is passed to direct descendants.
Recent CGT changes add another layer of complexity for those considering selling their farms. The CGT rates for non-residential property, previously 10% and 20%, have now increased to align with residential rates of 18% and 24%. This has taken immediate effect and could impact any calculations when selling land.
With increased phased rates, business asset disposal relief (BADR) remains in place. Currently, a 10% CGT rate applies to the first £1m of gain when a business is sold, but this will rise to 14% in April 2025 and 18% in April 2026.
The future of farmland values
The potential impact on farmland values is hotly debated. Many fear that the IHT changes will flood the market with farms, driving down prices and paving the way for large corporations to take over. Rollover buyers – reinvesting to defer CGT – could help sustain demand and steady values.
Current farmland profitability adds another dimension to the discussion. Despite economic challenges, farms have performed better than expected in recent years, partly due to ongoing Basic Payment Scheme (BPS) subsidies, high rental income, and successful diversification projects. These factors demonstrate that, with careful planning, farms can still generate strong returns.
The road ahead
While profitability may cushion some immediate effects, the long-term outlook remains uncertain. For farming families, these IHT changes signal the need for urgent planning to protect their livelihoods. Professional advice on restructuring assets and tax-efficient ownership models will be essential.
This policy shift marks a significant moment for UK agriculture, challenging the traditional family farm model and reshaping the landscape of rural Britain. How the sector adapts in the coming years will depend on farmers’ resilience and ability to navigate these sweeping changes.
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