Agricultural Property Relief (APR) has long been a cornerstone of the UK’s inheritance tax (IHT) framework, providing significant relief for those involved in farming, particularly family-run operations. Designed to prevent the forced sale of agricultural assets to cover IHT liabilities, APR offered up to 100% relief on qualifying agricultural land and property.
This tax advantage has played a vital role in preserving family-owned farms, maintaining rural communities, and ensuring the continued production of food. Following the reduction in APR outlined in the October 2024 budget, financial advisers, wealth managers, and paraplanners must now closely examine the implications of APR for their clients in the agricultural sector.
The reduction in APR, set to take effect in April 2026, introduces a significant shift. Under the new rules, 50% of the agricultural value above a £1 million threshold will be taxed at a reduced 20% rate instead of offering the previous full relief. While the government insists that small farms will remain largely unaffected, there is growing concern within the farming community that these changes could destabilise the agricultural industry, particularly for medium to large family farms. The National Farmers’ Union (NFU) has voiced concerns that this policy could force many farms to sell land to cover the resulting tax liabilities, which could have broader consequences for the UK’s food production and rural economy.
Key considerations for financial advisers
The revised APR regime raises critical questions for those advising clients in the agricultural sector. The immediate effect of these changes will likely be felt most by farmers who are facing the prospect of a significant inheritance tax burden, which could challenge the ability of farms to remain within the family across generations. With the new rules impacting assets over the £1 million threshold, advisers must be prepared to help clients navigate these changes and strategise for succession planning.
1. Succession planning and estate management
It is crucial to assess the impact of these changes on the future transfer of agricultural property. Clients may now face a situation where their estate is liable for inheritance tax in a way that could force the sale of agricultural land. The reduction in APR could make it more difficult for the next generation to inherit and maintain the family farm, particularly in the case of larger estates.
It is important to help clients quantify the likely inheritance tax exposure based on the new £1 million threshold and develop strategies for mitigating tax liabilities. This includes reviewing potential lifetime gifting of agricultural assets, especially since lifetime gifts of agricultural land were historically not incentivised. Under the new regime, lifetime gifting of agricultural property may become more attractive, particularly when considering the potential for the property to pass outside of the estate.
2. Lifetime gifts and trusts
One immediate action clients can consider is the possibility of gifting agricultural property during their lifetime, especially before the proposed reforms come into effect. A well-timed lifetime gift could help reduce the value of the estate and thus the potential IHT liability. However, there are risks associated with this strategy, particularly regarding the seven-year survival rule, which could be mitigated through the use of term life insurance policies. It is also important to assess whether trusts could play a role in asset protection, as there is a window of opportunity until 6 April 2026 to settle APR assets into trust without triggering an upfront IHT charge, provided the settlor survives seven years.
3. Will review and optimising the £1m allowance
For married couples, the new £1 million allowance for APR relief will not be transferable between spouses, unlike the standard nil rate band or residence nil rate band. This presents an opportunity to ensure that couples have suitable wills in place to divide assets effectively and maximise the use of both £1 million thresholds upon each death. In many cases, this could involve splitting agricultural assets between spouses in a way that ensures both allowances are fully utilised, reducing the overall tax burden.
4. Assessing the potential for land use shifts
The reduction in APR could have significant long-term consequences for the agricultural sector. With more farms potentially facing the need to sell land or reduce operations to cover IHT liabilities, there is a risk that UK agriculture could become more reliant on imported food. It is essential to be aware of the potential shift in land use, where agricultural land may be repurposed for non-agricultural uses, diminishing the domestic food supply.
As this trend unfolds, the competitive landscape for food production could change, with overseas producers potentially capturing a larger share of the UK market. This could drive up prices for domestically produced goods, creating a price advantage for international suppliers. Being prepared to guide clients through these evolving market dynamics ensures that they can adapt to changes in land use and investment in agricultural innovation.
5. Long-term sustainability and investment in farming
The reduction in APR may also limit UK farmers’ ability to invest in modern farming techniques and sustainability initiatives. With additional financial strain placed on family farms, there may be less capital available for innovation and the adoption of sustainable practices. It is important to help clients evaluate how these changes may impact the long-term viability of their farming operations and ensure that strategies are in place to maintain competitiveness in an evolving market.
The proposed changes to Agricultural Property Relief present significant challenges for farmers and their advisers. As the farming sector braces for these changes, it is crucial for financial advisers, paraplanners, and wealth managers to help their clients plan for the future. The new tax regime will require careful consideration of succession planning, estate management, and long-term investment in agricultural assets. By staying ahead of these changes, advisers can help their clients navigate this complex landscape and ensure the continued success of family farms for generations to come.
For more information, visit www.bishopfleming.co.uk/services/tax.
About Chris Walklett
Creative and connected, Chris is a growth-orientated partner with an international focus, responsible for Bishop Fleming’s West Midlands based tax team.
His background includes roles in practice and in industry with multi-national organisations such as EasyJet. In addition to working with clients directly across a number of areas, Chris works to grow the business communities we serve, with board position with LEPs, science parks and innovation hubs.
