Farms, businesses and Inheritance Tax: what do the changes mean for you?

The Chancellor’s Autumn Budget sent shock waves through the farming and rural business communities with proposals to limit the protection from Inheritance Tax (IHT) when passing on farms and qualifying businesses.

Agricultural Property Relief (APR) and Business Property Relief (BPR) were introduced to help protect qualifying farms and businesses, so that in the event of the farmer or business owner's death, their successors were not forced to sell assets or borrow money to pay the bill, as this would invariably impact their productivity or ongoing viability.

What’s changing?

From April 2026 the combined value of APR and BPR at 100% (meaning that no IHT is payable) will be limited to £1million per person. APR and BPR will be restricted to 50% on any value above £1m, meaning that half the value will be free of IHT while the balance will be included in the IHT calculation. 

Under the current proposals, the £1m APR / BPR allowance is not transferable between spouses or civil partners. To maximise the amount of farming or business assets passed down free of Inheritance Tax, it will be important to ensure that both partner's allowance is used. For some, this will mean reviewing how the assets are owned, and the provisions of each partner’s will.

What about gifting?

The Chancellor’s announcement included measures to cover gifts made from Budget Day on 30th October 2024. If the person making the gift of qualifying agricultural or business property dies on or after 6th April 2026 it will be subject to the new rules with 100% APR / BPR being capped at £1m.

If the person making the gift survives seven years, it will normally be free of Inheritance Tax. However, if that person continues to benefit from the assets gifted, the value will be included in their Inheritance Tax calculation, even if they survive for more than seven years.

We may see an increase in farmers and business owners bringing forward their succession plans because of these proposed changes. However, as we don’t yet have the final legislation, it’s important to take professional advice before making any irreversible gifting decisions.

Can my pension help me plan? 

One of the benefits of having a pension is that from age 55 (57 from 2028) it can provide you with an independent source of income which gives more choice when it comes to succession planning. There are a range of options available when it comes to taking money from your pensions. An NFU Mutual Financial Adviser can give you advice on the right options for you.

What about insurance?  

If you have existing life insurance policies, it’s important to make sure they are held in trust. If not, the proceeds will be included in your estate and may be subject to Inheritance Tax. Most insurance companies can provide the necessary documentation to put your policies into trust.

One way to provide a guaranteed lump sum on your death to help your family pay any potential Inheritance Tax bill is through Whole of Life cover. This will pay out when you die regardless of age.

If you plan to gift assets, you can help meet any potential bill with a ‘temporary life’ insurance policy that covers the potential liability should you die within seven years. Your NFU Mutual Financial Adviser can talk you through how each of the options work and make recommendations based on your circumstances.