The UK Labour government’s decision in October to reduce APR (Agricultural Property Relief) on (IHT) inheritance tax has put farm succession issues in the spotlight. Despite assurances during the 2024 general election campaign that no changes were being planned, APR will be cut to 50% and will be limited to agricultural estates worth less than £1 million. The changes are due to take place on 1st April 2026.
Many farmers have been protesting with tractor runs and static protests outside supermarkets and other venues. Many retailers, such as Morrisons, ASDA, and Tescos, have publicly called on the government to reconsider its plans and consult with the farming industry.
This article examines the changes to farm inheritance tax and their impacts and consequences. It also considers how farm businesses can mitigate the impact of IHT going forward.
What are the changes?
The 100% rate of relief will continue only for the first £1 million of combined agricultural and business property. Thereafter, it will be 50%. Business property relief (BPR) will also be cut from 100% to 50% in all circumstances for shares designated as “not listed” on the markets of recognised stock exchanges.
Summary of the Changes to Agricultural Property Relief: House of Lords Library
Farm Level Impact
UK Treasury data indicates that 73% of APR claims are below £1 million and would be unaffected by the changes. However, this is disputed. According to DEFRA, only 34% of farms are under £1 million net worth, with the average UK farm area being more than 250 acres (101.71ha). Thus, many more farms could be impacted than the government claims.
According to the NFU very few viable farms were worth under £1 million. Which they claim would only “buy 50 acres and a house”. The AHDB estimates that 42,204 out of 54,938 farms (76.8%) across England and Scotland will be impacted by the new tax rules.
“Cereals and general cropping farms are the most likely to be affected due to their scale and asset size. For livestock farms, it is those businesses with single person ownership that are most at risk.”
AHDB Analyst Tom Spencer
Savills claims that 50% of a generation’s profit would be needed to pay IHT on a 400-acre arable farm.
Why do the estimates vary?
The IFS states that one reason the two proportions could differ is that some estates claiming agricultural relief may do so on property that is not included in Defra’s Farm Business Survey (FBS). The number of estates for IHT purposes does not equal the number of commercial farms. The government figures relate to all estates claiming agricultural relief, while the Defra figures from the FBS relate to farms with at least a minimum level of output. Thus commercial-scale, food-producing farms are most impacted by the tax.
According to DEFRA, of the UK’s 217,000 holdings, a third are over 124 acres, and they farm 88% of the country’s agricultural land area. The IHT reforms will, therefore, impact the families and businesses farming most of the country’s farmland.
A second reason for differences is that one estate could include only a share of a farm and/or multiple farms. Older farmers also often gift farms well before death and, therefore, do not attract inheritance tax.
Will the policy work?
The Office of Budgetary Responsibility (OBR) has also stated that it was ‘highly uncertain’ whether the measures would raise the £500 million the Treasury claims.
According to the Not-for-Profit Tax Policy Associates, the changes risk missing the target – people buying farmland to avoid inheritance tax. Those landowners who aren’t farmers will keep using farmland as an inheritance tax planning vehicle. Buying a farm remains a great strategy if you hold less than £1 million (or £2 million for a couple). For those over this limit, a 20% inheritance tax is still better than 40%. In addition, many small lifestyle holdings that are not full-time family farms would remain exempt.
More elderly farmers won’t be able to plan ahead in time and will pay too much. They also claim that the OBR’s forecast of 40% of revenues lost to tax planning looks optimistic. Increased media coverage has raised awareness of the inheritance tax treatment of farmland and business assets, which could attract smaller investors.
What are the long-term implications of the changes to APR?
What are the likely long-term implications if the changes to Agricultural Property Relief go ahead?
Consolidation of farm holdings
Consolidation of farm holdings. Many small—to medium-sized commercial holdings will likely need to sell land to pay off inheritance tax debts. This will make them less viable, leading to the increased consolidation of holdings into larger units. Farmers may also be liable to Capital Gains Tax (CGT) on the sale proceeds of any land sold.
A shift away from Family Farming
The changes are likely to accelerate the trend away from family farming and towards the increased corporatisation of agriculture.
Food Security and Food Prices
UK food price inflation is already accelerating. The tax will fall heaviest on commercial-scale holdings and productive farms rather than the many smaller ‘hobby’ farms and lifestyle holdings. This could disrupt supply chains and lead to reduced UK food security.
Many farms are also likely to be bought up by outside interests, such as energy companies and polluting industries looking to offset rather than reduce carbon emissions. This could accelerate the shift towards other land uses, e.g. solar panels, rewilding or housing. Farmers will seek to build up a “war chest” to cover potential inheritance tax bills by reducing capital investment. UK farmers will also be put at a disadvantage in export markets by having to compete with farmers in other countries which do not levy an inheritance tax on farms.
In the long term, there will be an increased reliance on food imports, with increased price volatility and higher food prices due to climate change and geopolitical risks. Rising food prices, as always, are likely to disproportionately impact the least well-off.
Land Prices
It is likely that IHT will lead to the increased disposal of land, and this will impact the prices of farmland. Farmers will be less able to borrow against the value of their land to fund investment.
Increased Debt
Farmers can pay off IHT in instalments over 10 years. Some farmers may need to take on additional debt in order to pay off the tax.
Farm Tenancies
Landowners may need to sell off tenanted land to pay off APR. George Dunn, leader of the UK Tenant Farmers Association, has already said that some of their members have already had landlords or land agents warn them about the possibility of selling off land, which is on short-term FBT agreements.
Tenancies can also reduce reduce IHT for landowners. This is because land tied up in agricultural tenancies is not an attractive option for some potential buyers.
Rural Communities
A decline in traditional family farming communities is likely to have significant cultural impacts. For example, 43% of agricultural workers in Wales speak Welsh (the highest of any sector). Taking farmland out of production could significantly impact the future of the Welsh language in its current heartlands. In addition, there will be impacts throughout the food and input supply chain and increased rural unemployment.
The Environment
Farms need to invest to meet net-zero ambitions and build climate resilience. Now, many farms may need to cut capital investment to pay off IHT bills. At the same time, cuts to the overall agricultural budget will also make achieving those targets more difficult.
Mitigation Strategies
The OBR report states that most individuals structure their affairs with a view to inheritance in their 50s and 60s, which will impact receipts in the long term. The OBR states that elderly farmers are the most vulnerable. Many younger farmers will be able to review their businesses and mitigate the impact. It is essential that farming families take professional advice from accountants, solicitors, etc., although this advice also incurs increased costs.
Whilst the following does not constitute professional advice, potential strategies could include:
Succession Planning
Effective succession planning is now essential for family farms. This includes spousal transfers and gifts to children. Farmers may consider making gifts of their commercial and agricultural assets and handing over the reins of the farm much earlier than they intended. Landowners will need to take great care drafting new wills and will need to review any existing wills.
Reviewing Business Structures and Ownership
Some farmers may be able to distribute assets amongst family members to take advantage of each individual’s £1 million allowance.
The government has also announced anti-forestalling measures, which means that the donor would need to survive seven years from the date of the gift for the plan to be fully effective. Whilst a gift of such assets will also trigger a CGT (Capital Gains Tax), there are reliefs available to potentially defer (or “holdover”) the gain for CGT purposes.
The Use of Trusts
Farmers can use family trusts as a means to reduce IHT liabilities by setting up trusts for family members before 6 April 2026 to “bank” the current 100% IHT relief (and taking advantage of the above CGT “holdover” relief).
Gifting
The rules around gifting remain unchanged at present, despite rumours of some changes in the Spring Statement. Gifts made more than seven years before death remain exempt from IHT. Gifts made more than three years but less than seven years are subject to IHT on a tapered basis. No IHT reduction applies if death occurs within three years of the gift(s) being made.
Life Insurance
Life insurance policies can cut IHT bills by providing a payout to beneficiaries to cover any IHT bill. These can also be exempt from IHT if wrapped up within a trust.
Look at Non-Agricultural Uses
Not all farm property qualifies for APR. Buildings with non-agricultural uses or land with development potential may require additional strategies, such as:
- Leveraging BPR for broader relief coverage;
- Separating agricultural and non-agricultural assets to maximise exemptions.
On the positive side, as of April 2025, land used in government-backed environmental schemes, such as conservation and regenerative agriculture, will now qualify for APR. This could include taking advantage of opportunities such as Biodiversity Net Gain (BNG), which allows farmers to retain control of their land while deriving income.
What happens next?
The government has yet to publish the precise legislation, however the pushback against the changes, which includes some newly elected Labour MPs, could still result in some concessions. If the changes fail to raise the money anticipated, there may be further cuts to APR. Now more than ever, farmers will need to seek advice from solicitors, tax advisors, and other professionals on the implications of the changes and ways to mitigate them.
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