Monumental restrictions on agricultural and business relief for the farming industry and family businesses
As we approached the Autumn Budget, the farming industry braced itself for speculated changes to inheritance tax reliefs. Certainly, the reforms announced this week, to take effect from April 2026, will have enduring consequences for farmers and business owners.
The Treasury claims to be making the inheritance tax system fairer by “restricting the generosity of agricultural property relief and business property relief for the wealthiest estates”.
The generosity referred to in the Budget was that it was previously possible for qualifying agricultural and business assets to benefit from up to 100% inheritance tax relief to preserve family farms when they are passed on to the next generation (and consequently protect food supply chains). Business relief provided a similar safeguard for working family businesses.
More estates are expected to be caught by inheritance tax with individual nil-rate bands and exemptions frozen at the current thresholds until April 2030. In addition, new restrictions mean that the previous 100% relief will be capped at £1m of combined agricultural and business assets. The effect is that agricultural and business assets in excess of £1m will only benefit from 50% relief with an effective rate of inheritance tax at 20%. Those assets which already receive the 50% relief will not use up the new allowance.
The rate of business relief will also be reduced to 50% for shares not listed on the markets of a recognised stock exchange, which includes AIM shares.
The new £1m allowance covers assets in the estate at death, lifetime transfers seven years before death and property transferred into trust. It is important to note that the allowance, and any unused allowance, will not be transferrable between spouses and civil partners.
The Budget suggests the restrictions will only affect “around 2,000 estates each year from 2026 to 2027” but many family businesses will feel these changes acutely. We expect to see strategies for placing assets in trust before April 2026, and lifetime gifting, come to the forefront of inheritance tax planning; options which may only be available to wealthier estates.
For smaller family farms and businesses who will now be caught by inheritance tax it will be a difficult landscape to plan for the next generation. For those in parts of the country where development opportunities can hugely affect the value placed on their land, agreeing valuations with HM Revenue & Customs will be significant.
We look forward to the government’s technical consultation in early 2025.
Read the Autumn Budget here.
