Tax and succession planning for farmers

With major reforms to agricultural and business property relief (APR and BPR) and new pressures on lifetime gifting, Lodders unpacks what the latest inheritance tax changes mean for farmers and the practical steps you should be taking now. 

Following the October 2024 budget, farmers have had to consider the impact of the limit to inheritance tax relief on farmland and trading businesses. Since the major changes in the 2024 budget, we’ve also had a minor change to the rules in the 2025 budget, followed by the major announcement on the 23 December 2025, considerably increasing the cap on claims for 100% relief to £2.5m per person.  

The new changes are a considerable change to inheritance tax implications for farming and business owners and create a fundamental change in how farmers should view their succession and estate planning. With the changes has come some uncertainty as to the new rules, how they operate and how best to deal with farming and business assets from an estate and succession planning point of view. John Rouse, partner in Lodders’ Private Client team, sheds some light on the recent changes and the practical steps farmers should be taking now. 

Where are we now? 

Following the 2024-2025 budgets and the HMRC announcement, from 6 April 2026, there will be a cap on claims for 100% agricultural property relief (APR) and business property relief (BPR) to £2.5m per person. This applies to both spouses. The allowance is now transferable between spouses, meaning they will have a combined inheritance tax allowance for claims to 100% relief of £5m. Any value in excess of £2.5m (or £5m for a married couple/civil partners) will attract 50% relief. 

Whilst there is the possibility of further changes, the general mood seems to be that HMRC and the Government will settle on the new £2.5m cap on claims for 100% APR and BPR, but we’ll need to see the final version of the legislation to understand the new rules in full. 

What should farming businesses be considering? 

Capital taxation for farmers and businesses has historically encouraged owners to retain their assets until they pass away and pass them to the next generation on death. As a result, many farmers’ businesses, with the benefit of professional advice, have chosen to retain land and business assets until they pass away, rather than looking at lifetime gifting of assets. 

The new rules bring in a dramatic and considerable change whereby farmers will need to change their mindset to consider passing on assets to the next generation during their lifetimes, particularly while there is the prospect of surviving the gift of assets by at least seven years. 

Here is a checklist of some practical steps you should be taking now: 

• Review partnership agreements 

It’s important to ensure you have an up-to-date partnership agreement which sets out how the partnership will be dealt with and how decisions are made regarding the sale of farmland. If farmers are encouraged to make gifts of farmland during their lifetime, they may want to include appropriate mechanisms within the business to ensure property is sold or transferred with the consent of all appropriate partners. 

An up-to-date, appropriately worded partnership agreement is vital to ensure that the business can continue, especially following family bereavement, marital breakdown or financial difficulty. 

• Engage in the conversation 

Bringing up the prospect of succession planning is always a difficult topic, but conversations now can avoid conflicts and costly disputes down the line.  Having a plan in place can help future generations focus on the business and manages future expectations.  If that is a difficult conversation to have within the family, consider using a professional to help discuss the issues and facilitate a formal plan. Lodders would be happy to assist here, please do get in touch.  

• Review asset ownership 

It’s important for farm businesses to review the ownership of assets and consider passing them to the next generation with appropriate controls. The ownership of assets can be set up to prevent any unnecessary exposure to inheritance tax. 

• Ensure your wills are up to date 

Succession planning for farmers has its challenges beyond minimising inheritance tax liabilities. Providing for children, especially where there are children not involved in the farm business, requires appropriate, careful planning. This is particularly true where there may be some prospect of future property development.  

Structures can be put in place to ensure the continuity of the farming business whilst allowing any future development potential to be shared with wider family members. 

• Consider setting up a lifetime trust 

The new inheritance tax rules apply from 6 April 2026. For those farmers or business owners with potential inheritance tax liabilities, or who own land with development potential, a popular planning tool is to set up a lifetime trust to hold assets.  

From 6 April 2026, there will be an effective limit to the value of assets that can be gifted into trust without immediate tax liabilities. Because that limit will not apply until 6 April, there is a window of opportunity for land and business owners to gift land into trust without a cap. Time is of the essence, so those wanted to explore this avenue as a way of maximising their inheritance tax planning should set up a review with their solicitor as soon as possible.  

It’s crucial to remember that every business is different, and one size will certainly not fit all. Quality, advice tailored to your specific circumstances is essential. 

• Think about lifetime gifts  

The new rules encourage farmers to consider passing on assets during their lifetime. However, it’s important to act in plenty of time.  

For lifetime gifts to be effective for capital tax purposes, age and life expectancy of landowners must be considered – lifetime gifts should be done on the basis that the donor will survive for a further seven years. For certain farming families, due to age and health concerns, this may have its challenges.  

Inaction is not an option 

The 6 April 2026 deadline is fast approaching, you must act now. No matter your circumstances, it is important to take full advice on any succession planning as soon as possible.  

Wth specialist legal advice and appropriate preparation at an early stage, you can manage and mitigate many of the potential inheritance tax liabilities in such a way as to reduce the overall liability. Lodders can work alongside your existing tax adviser to structure your affairs in the most effective way for you, your family, and your business.