In the 2024 Autumn Budget, the government announced its controversial changes to agricultural property relief (APR).
Previously, this 'family farm tax' saving was brought in as part of the UK’s inheritance tax system, to help farmers pass down agricultural property and land to their heirs without incurring hefty tax liabilities.
It offered 100 per cent relief on 'qualifying agricultural assets' and was intended to preserve family-owned farms, maintain rural communities and ensure continuity in agricultural production, avoiding the 'forced sale of farmland solely to cover inheritance tax (IHT) costs'.
Chris Walklett, tax partner at Bishop Fleming, said: 'The roots of APR trace back to the government’s desire to support agricultural stability, recognising that many farms lack the liquidity to cover high inheritance taxes without selling off parts of the business.
'This relief has enabled family farms to transfer ownership through generations, ensuring long-term land stewardship and sustainable agriculture.'
But the autumn announcement laid out changes that would rock the farming community and spark protests across the country.
Chris said: 'The reduction in APR, announced in the October 2024 budget, involves taxing 50 per cent of agricultural value above a £1 million threshold, at a reduced 20 per cent rate instead of the prior full relief. This adjustment is expected to take effect in April 2026.
'While the government asserts that most small farms will remain unaffected, critics argue that these changes could destabilise British farming. The National Farmers’ Union has raised concerns, estimating that up to half of the country’s farms, especially medium to large family-run operations, may face tax liabilities that make it challenging to retain ownership across generations.
'This tax burden could prompt some farmers to sell their land, potentially reducing available farmland, which may negatively impact domestic food production and rural economies.'
Experts predict that the changes could bring about increased dependency on imports; competitive pricing leading to a rise in domestic food prices; long-term land use shift which could lead to a gradual reduction in UK-grown produce; and lower investment in UK agricultural innovation.
So, are there any specific actions that farmers can take now to mitigate the upcoming tax changes?
Zoe Martin, tax partner at Bishop Fleming, said: 'With 14 months before the proposed reforms come into force, it is important that families engage in discussions as a matter of priority and that appropriate advice is taken.
'Matters to consider would include quantifying what the likely inheritance tax exposure might be, consideration of how this will be funded and determining if there is any action to be taken.
'Under the current rules, there has been no tax incentive to making lifetime gifts of agricultural assets, in fact there has been a capital gains tax benefit to holding them until death. On death, the assets will pass relieved from IHT and rebased for capital gains tax purposes.'
She says that the new regime will 'turn this on its head and encourage outright gifts of APR assets'.
'Whilst lifetime gifting should be considered, this will only be successful if the gift is survived by seven years. Term life assurance might be an option to cover this risk, although this may be prohibitively expensive for older donors,' Zoe added.
Zoe says that it's also important to note that the new £1 million allowance will not be transferable between spouses, unlike the nil rate band and residence nil rate band.
She advises that couples should review their current wills and 'take advice to ensure that the ownership of the assets is appropriately divided between them — and that they have suitably sophisticated wills in place — to enable each £1 million allowance to be used on both of the deaths.'
And Zoe's final piece of advice: 'There is also a window of opportunity until Monday 6 April 2026 to settle APR assets into trust and not trigger an upfront IHT charge, should the settlor survive seven years.'
For more advice on these tax changes and how they might affect you and your farm, contact Bishop Fleming on 01242 505970 or visit bishopfleming.co.uk/contact/cheltenham.
