Estate Planning Tips For Farmers Facing Inheritance Tax Changes
With recent changes to Agricultural Relief and Business Relief, many farmers are reevaluating their estate plans to ensure that their farming legacy can pass smoothly to the next generation. The Chancellor’s first budget introduced significant adjustments that will impact how farming and agricultural assets are taxed upon inheritance, and these changes will take effect from 6 April 2026. Given these shifts, it’s more important than ever for farming families to consider proactive steps to protect their assets from high inheritance tax (IHT) bills.
Understanding the changes to Agricultural Relief and Business Relief
Until now, Agricultural Relief allowed farmers to pass down qualifying agricultural assets, such as farmland, buildings, and farming equipment, without IHT, provided the assets met certain requirements. This relief enabled many farming families to transfer their farms tax-free, helping ensure that operations could remain within the family. Business Relief similarly offered tax benefits for business assets.
However, beginning April 6, 2026, both Agricultural Relief and Business Relief will be limited to a maximum of £1 million. Assets valued above this amount will now qualify for only 50% relief, effectively creating a tax rate of 20% on the balance. This adjustment has caused concern, as it may lead some farming families to consider selling or dividing their farms to cover potential tax liabilities.
How to protect your farm from Inheritance Tax
Fortunately, there are steps farmers can take to prepare for these changes. Early, careful planning is key to maximising reliefs and ensuring that farming assets remain intact for future generations. Nick Latimir, a Solicitor in our specialist estate planning team, has compiled 4 strategies for farming families to consider:
1. Review and update your Will
Given the impending changes, it’s essential to review and potentially restructure your will to ensure it takes advantage of all available tax reliefs. Couples may wish to consider giving assets that qualify for Agricultural Relief and Business Relief directly to descendants rather than passing them on to a surviving spouse. This approach allows both spouses to fully use the £1 million exemption on each death, rather than concentrating relief only after the first spouse’s passing.
2. Consider holding assets as tenants in common
If you and your spouse jointly own farming assets, structuring ownership as tenants in common can be advantageous. This setup allows each spouse’s share of jointly held assets to be passed on independently, thereby enabling the strategic use of each spouse’s exemption. It also creates more flexibility in terms of how and when assets are passed down, potentially maximising the relief on each portion of the farm.
3. Make lifetime gifts to reduce taxable estate
Another effective approach is making lifetime gifts of certain assets to children or setting up a trust. Under current IHT rules, gifts made during one’s lifetime can fall outside of the taxable estate if the giver lives for seven years after making the gift. By transferring portions of the farm or certain assets into a trust, farming families can potentially minimise the value of assets that will be subject to inheritance tax in the future. Trusts also provide a means to maintain some control over assets while still achieving tax savings.
4. Consider trusts for long-term planning
Trusts are an excellent tool for long-term estate planning and can help farming families protect assets from future tax liabilities while maintaining continuity. Trusts can provide the family with continued access to farming assets, protect assets from creditor claims, and allow for gradual, tax-efficient transfer to younger generations. Consulting with a specialist on the type of trust that fits your specific needs can provide substantial long-term benefits.
Our expert team can help you safeguard your assets
At Wolferstans LLP, our dedicated team of Wills, Trust, and Probate specialists understand the unique needs of farming families and the complexities of agricultural estate planning. We are here to help clients navigate these changes with tailored strategies to protect their legacies. Our estate planning services focus on structuring wills, implementing trusts, and advising on lifetime gifts to help ensure that your farm remains your valuable asset for generations to come.
With professional guidance, proactive estate planning can be both manageable and effective, minimising the impact of IHT on your family’s future. If you’re interested in safeguarding your farming assets from inheritance tax, contact Wolferstans LLP today on 01752 292201 and take the first step toward securing your farm’s legacy.