From April 2026, farmers and agricultural business owners will only be entitled to a £1m inheritance tax allowance, with 20% charged on assets in excess. But some MPs have recently called for implementation of the new rules to be delayed for a year.
Meanwhile, the government is considering restricting the availability of agricultural property relief and business property relief (APR and BPR) even further. It wants to exclude transfers of assets across different trusts to maximise the £1m allowance.
The expert tax and business succession team at mfg Solicitors are experienced in advising farming families and agricultural landowners across Staffordshire, West Midlands and the wider region.
A consultation on the proposed further restrictions to the APR and BPR thresholds closed on 23 April. If these additional proposals come to fruition, farming businesses and agricultural land owners will need to think very carefully before dividing up assets with the aim of minimising inheritance tax.
‘Related’ property
Under inheritance tax (IHT) rules, there's a provision known as the "related property rule" that prevents individuals—particularly spouses or civil partners—from artificially reducing the value of their assets for tax purposes,, for example, by dividing up the ownership of assets such as company shares between each other.
In essence, the related property rule states that where an individual holds an interest in property that is related to property held by another person (usually a spouse or civil partner), the combined value of both interests must be considered when calculating the IHT value of each part, HMRC will use the higher value of the combined property for inheritance tax purposes (s161 of the Inheritance Tax Act 1984).
The government is considering implementing similar rules for APR and BPR, given the possibility that farming and agricultural property could be ‘fragmented’ across different trusts to maximise the relief. Ministers suggest this would ensure fairness and consistency.
The effect of a further restriction would be that if an individual transfers qualifying agricultural/business assets across multiple trusts, those assets would be treated collectively and valued as such for the purposes of inheritance tax. No minority discount (based on the holding in each trust) would be available.
In addition, the government views this kind of “fragmentation” as artificial and inconsistent with the policy intention. The technical consultation stated that the new rules would curb this strategy by limiting the total relief available to £1 million per settlor, regardless of how many trusts they create after 30 October 2024.
The government is now considering the responses to the consultation. It will decide the best option and draft the legislation to bring in the changes. No timescale has yet been given. It’s worth noting that the consultation document does not indicate the extent of any potential restriction on related property, for instance, whether farming spouses and families may be excluded to soften the blow.
April 2026
When the changes were announced last November, the farming community reacted in anger and there has been widespread concern the UK’s agricultural sector faced decimation.
Those concerns have not dissipated: in May, the cross-party Environment, Food and Rural Affairs Committee published a report urging government to delay the changes to April 2017 and to consider potential alternative, less damaging schemes. A delay would also give farmers more time to “conduct succession planning and seek appropriate professional advice”.
The government insists the changes are vital. Many farming and agricultural businesses feel differently and are fearful for the future.
How we can help
The specialist tax and succession team at mfg Solicitors understand the serious concerns within the farming and agricultural sector - especially where family businesses will be impacted.
Early advice and preparation is vital and we are ready to support you in protecting your future. Contact Scott Vanes by calling on 01562 820181, by email at scott.vanes@mfgsolicitors.com or complete our contact form here and we will get back to you shortly.
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