The agricultural sector is facing unprecedented challenges following the Labour government’s autumn budget announcement. Many farming families across the UK are now grappling with significant changes that could reshape how they plan for the future. Understanding the new farmer inheritance tax rules has become crucial for anyone involved in agriculture, as these changes will fundamentally alter how family farms are passed down through generations.
The reforms to Agricultural Property Relief (APR) represent one of the most controversial aspects of the 2024 budget, with farming unions and rural communities expressing serious concerns about the long-term impact on food security and family farming traditions.
What Is Farmer Inheritance Tax?
Inheritance tax is levied on estates when someone dies, typically at a rate of 40% on assets above certain thresholds. For farming families, this has historically been manageable thanks to Agricultural Property Relief, which provided 100% relief from inheritance tax on qualifying agricultural property.
This relief was designed to protect family farms from being broken up or sold to meet tax obligations. Without such protection, many farms would face crippling tax bills that could force sales, potentially ending generations of family farming.
Labour’s New Inheritance Tax Rules for Farmers
The government announced reforms to agricultural property relief (APR) and business property relief (BPR) from inheritance tax in the autumn budget 2024, with reforms planned for April 2026. The changes represent a significant shift in how agricultural assets will be treated for inheritance tax purposes.
The New £1 Million Threshold
Assets exceeding the £1 million allowance will qualify for 50% relief instead of 100%, resulting in an effective 20% inheritance tax charge on the remaining value. This means that whilst the first £1 million of qualifying agricultural property remains exempt from inheritance tax, anything above this threshold will face a 20% tax rate.
One person who owns a farm will be able to pass on land and property valued up to £1.5 million tax free to a child or grandchild. That is made up of their standard £500,000 tax-free allowance (£325,000 nil-rate band + £175,000 residence nil-rate band), and an additional £1 million tax-free allowance from the new agricultural property relief structure.
When Do These Changes Take Effect?
The new rules kick in from 6 April 2026. Between the 31 October 2024, (Budget Day), and 6 April 2026 we are in a transitional period which means that there is some possible scope for planning.
Who Will Be Liable for the New Farmer Inheritance Tax?
The government’s impact assessment suggests the changes will be relatively limited in scope. The reforms are expected to only affect around 2,000 estates each year from 2026 to 2027, with around 500 of these claiming agricultural property relief according to official estimates.
However, farming organisations paint a different picture. Government suggests 27% of farms will be affected by changes to Inheritance Tax (IHT), namely Agriculture Property Relief (APR). In sharp contrast, the NFU has demonstrated more farms will be impacted and has released data showing 75% of farms stand to be above the £1m threshold.
Farms Most at Risk
The new tax will particularly impact:
- Larger family farms valued above £1 million in agricultural assets
- Farms in areas with high land values
- Diversified farming operations with significant business assets
- Multi-generational farming families without adequate succession planning
How to Minimise Your Farmer Inheritance Tax Liability
The transitional period until April 2026 provides opportunities for tax planning, though options are more limited than before.
Spousal Transfers
Any agricultural and business assets left to a spouse or civil partner will be tax free. This provides an immediate planning opportunity for married farming couples to utilise both partners’ allowances effectively.
Lifetime Gifting Strategies
The £1 million relief allowance will refresh every seven years for lifetime gifting, meaning farmers could potentially make gifts during their lifetime to utilise multiple allowances over time.
Business Structure Planning
Converting farming operations into appropriate business structures may help utilise business property relief alongside agricultural property relief, though professional advice is essential for such complex arrangements.
The Wider Impact on British Agriculture
To pay this new inheritance tax bill, many farmers will be forced to sell their farms, likely to private equity firms and large corporations who have no interest in looking after our countryside. This concern highlights the potential long-term consequences for rural communities and food production.
The government has said this would just affect the wealthiest landowners and disincentivise buying agricultural land to avoid tax. Farming groups have argued the policy is a threat to the viability of family farming in Britain.
Getting Professional Advice
Given the complexity of these changes and the significant sums involved, seeking professional advice has never been more important for farming families. Tax advisers, agricultural specialists, and estate planning experts can help navigate the new rules and identify the most appropriate strategies for individual circumstances.
The changes to farmer inheritance tax represent a fundamental shift in agricultural policy that will require careful planning and consideration from all those involved in British farming. With the April 2026 implementation date approaching, now is the time to assess your position and explore available options.
Understanding these changes is the first step towards protecting your family’s farming legacy under the new inheritance tax regime.