How family farm businesses could be hit by Budget inheritance tax relief overhaul

At the Autumn Budget on 30 October, the Chancellor announced that agricultural property relief (APR) and business relief (BR) will be reformed. 

APR is an inheritance tax relief that can currently provide 100% protection against IHT when farmers and landowners pass farmland and agricultural business to the next generation. It protects against the break-up of farm businesses, which in many cases would be necessary to foot an IHT bill.

From 6 April 2026, the full 100% relief from IHT will be restricted to the first £1million of combined agricultural property and business assets. Above this amount, landowners will pay IHT at a reduced rate of 20%, rather than the standard 40%, although this tax can be paid in instalments over 10 years.

The Treasury has said that with other nil-rate bands, ‘this means that two people with farmland, depending on their circumstances, can pass on up to £3million without paying any inheritance tax’.

Luke Lodge, Financial Planning Partner at the Yorkshire offices of wealth management firm Evelyn Partners, says, ‘Yes £3million could potentially be passed down tax free with effective planning. But it’s feasible only for currently married farmers with under 200-250 acres and it will still take some careful financial planning, especially on the first death.[1] The numbers change massively for larger farms and/or where the farmer is single, divorced or already widowed.

‘Coming from an agricultural background, I can see through theoretical numbers on paper to how, practically, the Budget changes to IHT reliefs will hit close to home. There are all sorts of nuanced issues that the numbers can hide, like whether the farmhouse is covered by APR or the residential nil-rate band (if it’s available), and also farms that currently make use of both APR and BR, which will lose out because these reliefs have been combined.’

‘But let’s just focus on how many farming families will be able to afford impending IHT liabilities.’

Lodge continues: ‘Some of the coverage from tax commentators who are more relaxed about the Budget changes to IHT reliefs has estimated that a £5million estate would pay c.1% per annum in IHT if split over 10 years, with a £10m estate increasing to closer to 2% per annum. However, the fact that annual profits tend to be just 1.0%-1.5% of the asset value seems to have been neglected. 

‘To put some context around the changes let’s look at the largest farmer in the UK, Sir James Dyson. Dyson’s farming company made profits of £5.2million in the year to 31 December 2023. This seems a good level of profit but Dyson farms 36,000 acres, so this then equates to profit of c.£144 per acre. 
 
‘If the largest farm in the UK makes profits of £144 per acre, how would this translate to a family farm that we all associate with our countryside and rural areas? The farms that produce the locally reared produce that you will find in your butchers, bakers, greengrocers, and farm shops.
 
‘A good-sized family farm would be around 1,000 acres and if agricultural land is worth £10,000 per acre, you could estimate that the farm would be worth £10 million. Sounds a lot of money so what is the problem? Plenty of scope to fund an IHT bill? 
 
‘However, if we take Dyson’s profit levels of £144 per acre (a recent profitability forecast put the range at £80 - £165[2]) then a 1,000- acre farm would make £144,000 of profit. That looks a good level of profit but it will be spread over two or three generations working the farm. 
 
‘If we look at the impact of the changes to APR on this farm, assuming a single individual at the point of death and other allowances are used elsewhere. The first £1million would qualify for APR and then the excess would be taxed at 20%. We can’t plan when we die and the worst-case scenario could see £9million taxed at 20%, leaving an IHT bill of £1.8million. 
 
‘Where is this money going to come from? How does a business that generates £144,000 profit a year suddenly find £1.8million to cover the IHT on death, without selling off land and potentially breaking up the business?

‘IHT payments can be spread over 10 years, but you still have a business that makes £144,000 profit – which is very much at the higher end of expectations - needing to find £180,000 per annum to cover the IHT bill.  
 
‘Even if this is reconcilable for one generation, would the next generation want to put themselves and their family into a stressful and precarious business? 
 
‘Sale of all or part of the farm will be the likely option, but who buys it? Other local farmers may be in the same position and worried about their own estate, so probable buyers would be large-scale corporate operations or solar panel “farms”. Without effective planning or remediation, the changes to IHT reliefs put us in danger of losing our food security, lowering the standards of animal welfare, and leaving us dependent on imports of questionable quality.  
‘One often-mentioned financial planning solution to large expected IHT bills is to take out a whole of life insurance policy to cover the amount. Assuming a single individual needing to cover that £1.8m of IHT that would be due on death: the premiums at age 60 according to current quotes would be £28,620 a year, or c.20% of the farm profits.[3] 

‘That would increase to £89,016 at age 80 or c.62% of the farm profits. Planning early gives options but for those where elderly family members still own all the assets, they are going to just have to hope that they can give assets away and live for seven years. 

‘Owner-managed businesses and entrepreneurs - regardless of whether they are based in the countryside or not – that are affected by this should not panic, but it is crucial that they don’t stick their heads in the sand. Take advice and ensure that you understand the options ahead for your business and your family.’ 
 
NOTES

[1] If you have a married couple they will each have £325k NRB and £175k RNRB and they will also have £1million each APR/BR relief. 

So, on death of 1^st spouse they could utilise the £1million APR/BR by passing this to the next generation at this point, to children not spouse. If they choose they could also utilise the NRB & RNRB at this point as well, as long as they had total assets in the deceased spouses name of less than £2million to ensure they have the full RNRB - as this would be tapered for estates of value above £2million. 

Then on 2^nd death the surviving spouse would have £1m APR/BR to use and their NRB and RNRB, totalling £1.5m. Would need to have total assets of less than £2million again to claim the full RNRB. 
 

[2] Strutt & Parker: Arable farmers facing big hit to profits in 2024

This source predicts even worse profit rates for final 2024 figures, at £33 to £109 per acre. 

[3] Whole of life cover: