Inheritance Tax (IHT) has long been a concern for farmers, whose estates often include high-value agricultural land and assets. Recent proposals by the UK government aim to reform the current system, significantly altering the financial landscape for farming families. These changes, set to take effect in April 2026, have sparked widespread debate within the agricultural sector.
The Current System for Farmer’s Inheritance Tax
Under the existing rules, farmers benefit from two key reliefs to help mitigate the impact of IHT:
- Agricultural Property Relief (APR):
Provides up to 100% relief on the value of agricultural property (land, buildings, and some farmhouses) if used for farming purposes. - Business Property Relief (BPR):
Offers up to 100% relief on qualifying business assets, including machinery and non-agricultural business components of a farm.
These reliefs are essential for enabling farms to pass through generations without significant financial disruption.
Proposed Changes
The government’s proposed Farmer’s Inheritance tax reforms aim to address perceived inequalities in the current system while ensuring a fairer distribution of tax burdens. Key elements of the proposed changes include:
- £1 Million Relief Cap:
a) Estates will receive 100% relief on the first £1 million of combined agricultural and business property.
b) Beyond this threshold, the relief drops to 50%, meaning an effective IHT rate of 20% applies to any additional value. - Stricter Criteria for APR:
a) Only land actively farmed for agricultural purposes will qualify. Passive ownership or investment in farmland may no longer meet the criteria. - Reduced Relief for Non-Agricultural Assets:
a) Non-agricultural elements of farming businesses, such as rental properties or diversified income streams, will be subject to reduced relief or excluded entirely. - Tightening of Business Relief:
a) Relief on shares in unlisted companies, often used in diversified farming operations, will be reduced from 100% to 50%.
Government’s Intentions
The government argues that these changes are necessary to:
- Reduce Tax Avoidance: Limit the use of agricultural assets as tax shelters by non-farming investors.
- Target Wealthier Estates: Ensure reliefs benefit small to medium-sized farms rather than disproportionately favouring large, high-value estates.
- Increase Revenue: Boost tax receipts to fund public services without significantly impacting most family-run farms.
0 Comments