In Farmers We Trust: How the UK Budget’s Inheritance Tax Reforms Impact Farmers
The farming community has long been the backbone of rural Britain, ensuring food security and stewardship of the countryside. However, the UK government’s recent budget announcement threatens to disrupt this balance. From April 2026, significant changes to inheritance tax (IHT) reliefs for agricultural and business assets will come into force, raising serious concerns for farming families across the country.
These reforms, while presented as a step towards fairness, have been criticised for their potential to destabilise family farms—many of which are asset-rich but cash-poor. Let’s explore the changes, their implications, and potential strategies to mitigate their impact.
What’s Changing?
Under the current rules, agricultural property relief (APR) and business property relief (BPR) allow qualifying farm and business assets to be passed on free of inheritance tax, at rates of 100% or 50%, with no cap. This has enabled farming families to preserve their holdings and pass them down through generations.
However, starting in April 2026, the government plans to cap the total IHT relief for agricultural and business assets at £1 million per estate. Any value above this cap will be subject to a reduced inheritance tax rate of 20%—a significant departure from the current 40% standard rate.
Additional provisions include:
- The tax will be payable in instalments over 10 years interest-free, easing liquidity pressures for inheritors.
- Full exemptions for transfers between spouses and civil partners will remain unchanged.
- Standard nil-rate bands will still apply:
- £325,000 for general assets, and
- £175,000 for a primary residence passed to a direct descendant.
This means a married couple could potentially pass on up to £1.5 million (£325,000 + £175,000 x 2) in non-agricultural assets, in addition to the £1 million APR cap per individual.
However, the reforms broaden the scope of taxable estates to include non-residential farm buildings, vehicles, tools, livestock, chemicals, and fertiliser stocks, making it harder for families to shield assets from tax.
Illustrative Examples of How the Changes Will Apply:
| Who Owns the Farm? | Who It’s Passed To | Available Allowances | Value Passed Tax-Free |
| Farm owned by two people | Child or grandchild | 2 x £1m APR cap + 2 x £500,000 (standard and residence allowances) | £3 million |
| Farm owned by two people | Non-descendant (e.g., sibling) | 2 x £1m APR cap + 2 x £325,000 (nil-rate bands) | £2.65 million |
| Farm owned by one person | Child or grandchild | £1m APR cap + £500,000 (standard and residence allowances) | £1.5 million |
| Farm owned by one person | Non-descendant (e.g., sibling) | £1m APR cap + £325,000 (nil-rate band) | £1.325 million |
Why Is This Happening?
The government argues that these reforms are necessary to prevent misuse of APR by wealthy landowners who do not actively farm the land. According to the Treasury:
- The largest 2% of APR claims accounted for 22% of total relief, costing taxpayers £119 million annually.
- Just 7% of claims accounted for 40% of total relief, costing £219 million.
Chancellor Rachel Reeves emphasised that the changes aim to protect smaller family farms while ensuring tax fairness. The government has also stated that these measures would reduce tax-driven land investment, potentially lowering land prices and making farmland more affordable for active farmers.
However, farming organisations such as the National Farmers Union (NFU) and the Country Land and Business Association (CLA) are strongly opposed to the reforms. They argue that the government’s rationale does not reflect the realities of farming, where land values are high, but income and profitability often remain low.
NFU President Tom Bradshaw warned:
“This will snatch away much of the next generation’s ability to carry on producing British food, plan for the future, and steward the environment. Every penny the Chancellor saves from this will come directly from the next generation having to break up their family farm.”
The CLA has also estimated that 70,000 UK farms could be affected, leading to stagnation, asset sales, or borrowing just to cover tax liabilities.
How Can Farmers Protect Their Legacy?
While these changes present challenges, farmers can take steps to mitigate the impact of the reforms. One such approach is the use of bare trusts, a simple yet powerful tool for estate planning.
What Are Bare Trusts?
A bare trust allows assets to be held in the name of a trustee while the beneficiary retains full ownership rights, including access to income and capital. Transfers into a bare trust may also be exempt from inheritance tax, provided the transferor survives for at least seven years.
Why Consider a Bare Trust?
- Bare trusts can help shield farm assets from inheritance tax.
- They allow for greater control over how assets are distributed, ensuring the farm remains within the family.
- They simplify estate planning, especially for families with complex asset structures.
Act Now: Planning Is Key
With these reforms set to take effect in April 2026, it’s essential for farming families to act quickly. Proactive estate planning can help minimise tax liabilities, safeguard your farm, and ensure your family’s legacy is protected for future generations.
At Coots & Boots, we understand the unique challenges farmers face. Our expert advisers can provide tailored advice on:
- Inheritance tax planning strategies.
- The use of bare trusts to protect farm assets.
- Structuring your estate to maximise available reliefs.
Contact Us Today
Don’t let these changes threaten your family farm. Contact Coots & Boots today to learn how we can help you navigate these challenges and secure your family’s future.
