No quick fixes for farm owners’ inheritance tax challenge, S&W warns

Experts at accounting and professional services firm S&W have warned that there are no quick fixes and urged farmers to take advice. 

“The reduction in inheritance tax relief for agricultural land and assets could have a devastating impact on thousands of family farms,” said Aloysia Daros, S&W Head of Landed Estates and Rural Businesses. 

“Now the waiting and uncertainty is over, farm owners need to address this urgently. But they must also ensure the strategies put in place will prove effective in limiting the impact of the inheritance tax changes. Control of the assets and income must be central to those discussions.”

Reduced reliefs

The changes to the inheritance tax (IHT) on farming property, first proposed in last October’s Budget, limit agricultural property relief (APR) and business property relief (BPR). Together, these previously eliminated the IHT payable on qualifying property, which included most farmland, property and business assets in agricultural estates.

The proposals, now confirmed in the draft legislation, limit the 100% APR and BPR relief to the first £1 million of combined agricultural and business property. From April 2026, property above that value will only benefit from 50% relief, leaving an effective IHT charge of 20% on the estate’s value.

As Daros explains, owners who could previously hand down the farm to the next generation tax-free face leaving them with large tax bills on their death. They may have to sell land to meet this liability, limiting their future income.

“They face paying 20% on the value of the land, regardless of the profits it’s making or otherwise. With many farms facing a tough time from rising costs and tight margins, it puts their viability in doubt,” she said.

Control and income: Key to IHT
More farm owners are now likely to consider passing their farms on to their children while they’re alive. However, this type of planning is not without risk, especially for older owners. The reform will cover these lifetime transfers if they die within seven years of the gift. The reforms also introduce significant changes to the rules around transfers to trusts. 

“The reform drove a horse and cart through farm owners’ capital tax planning,” noted Daros.

Crucially, where farmers choose to transfer ownership during their lifetime, they must beware of “gifts with reservation of benefits”, she said. If HMRC concludes the transfer of ownership is merely nominal, and the old owner continues to benefit from the property, they’re unlikely to escape inheritance tax. 

“Control and income are key,” said Daros. “If you transfer the property but keep control of it and still benefit from the income, your family may not escape a tax bill when you die. But the rules are complicated, and there are genuine transfers that can see owners continue earning some income from the land.

“It’s vital to take advice, and it’s now increasingly urgent that farm owners do, so they can secure their futures.”

S&W has a long history advising landed estates, family farms, and agri-businesses. Its services and strategic advice cover IHT planning, project appraisals, business and group structures and capital gains tax planning, as well as conditional exemption planning, heritage maintenance funds and bloodstock. The firm advises clients who, collectively, have over 450,000 acres under their stewardship.