IHT on Farms
What will the new Inheritance Tax Changes mean for agricultural landowners?
The government has announced significant revisions to its proposed changes to Inheritance Tax (IHT) on farms, increasing the planned tax-free threshold for inherited agricultural assets from £1 million to £2.5 million. The changes follow sustained industry pressure and widespread concern from farming families about the impact of the original proposals on working farms.
These reforms, due to take effect from April 2026, represent a major shift in how IHT on farms will apply in the future and underline the importance of early, proactive tax and succession planning for agricultural businesses.
Why is IHT on Farms changing?
Historically, agricultural assets have benefited from generous reliefs under Agricultural Property Relief (APR), in place since the 1980s. These reliefs allowed qualifying farmland and buildings to be passed on free from inheritance tax in many cases.
At the 2024 Budget, the government announced plans to restrict these reliefs, proposing that agricultural assets valued above £1 million would be taxed at 20%, half the standard inheritance tax rate. The stated aim was to prevent wealthy investors from using farmland as a tax shelter, while still protecting smaller family farms.
However, farmers, industry bodies and MPs warned that the original proposals failed to reflect the reality of farming businesses, which are often asset-rich but cash-poor.
What has changed in the new, and recent, IHT on Farms proposal?
Following months of protests and consultation, the government has revised its position. The key changes are:
- The IHT threshold for farms has increased from £1 million to £2.5 million
- Assets can still pass tax-free between spouses
- As a result, a farming couple could potentially pass on up to £5 million of qualifying agricultural assets without triggering inheritance tax
- The revised rules are still expected to apply from April 2026
The government has said the changes are intended to protect ordinary family farms while ensuring that larger estates make a fair contribution.
Expert insight from RPGCC’s Tax teram
Commenting on the announcement, Tim Humphries, Head of Tax at RPGCC, said:
“We expected changes to IHT on farms to feature in the November Budget, and we also anticipated that any allowance would ultimately be set on a per-person basis rather than per couple. The increase in the threshold reflects the political and commercial reality of taxing agricultural businesses that are land-rich but income-constrained.”
Despite the higher threshold, concerns remain for some families.
Adam Thompson, RPGCC’s Head of Private Client Tax, added:
“Many family-owned farms hold high-value land and expensive machinery, yet operate on very small margins. When those assets are valued together, some farms will still exceed the new threshold, creating an inheritance tax liability that may be unaffordable without selling land or restructuring the business.”
What does this mean for farming families?
While the revised proposals significantly reduce the number of farms affected by IHT on farms, they do not eliminate inheritance tax risk altogether.
Farms close to or above the new threshold may still face difficult decisions around succession, ownership structures, and long-term viability.
Key considerations include:
- Reviewing current land and asset valuations
- Assessing eligibility for Agricultural Property Relief and Business Property Relief
- Considering ownership structures, partnerships and family trusts
- Planning succession well in advance of April 2026
Planning ahead for IHT on Farms
With implementation still some time away, farming families have a valuable opportunity to review their position and put robust plans in place.
Seeking early tax advice can help mitigate exposure, preserve family ownership and ensure the business can continue to operate sustainably across generations.
At RPGCC, our specialist private client and agricultural tax advisers work closely with farming and agricultural families to navigate the complexities of IHT on farms, succession planning and long-term wealth preservation.
How RPGCC can help
We advise on:
- Inheritance tax planning for farms and rural estates
- Agricultural Property Relief and Business Property Relief
- Family succession and estate planning
- Partnership and ownership structuring
- Ongoing tax compliance and valuation support
If you would like to understand how the changes to IHT on farms may affect you or your family, please contact us on 020 7870 9050 to discuss your circumstances in confidence.
