Succession Planning for Farmers: Understanding the Impact of Inheritance Tax Changes

Succession planning remains a critical priority for farming families, particularly as the most significant changes to the UK’s Inheritance Tax regime in decades came into effect on 6 April 2026.

The government’s reforms to Agricultural Property Relief (APR) and Business Property Relief (BPR)—including increasing the full‑relief allowance to £2.5 million per individual, transferable between spouses—will reshape how farm assets are passed on to the next generation.

With these changes having now come into effect , now is the time for farming families to assess whether existing structures, wills and succession plans remain fit for purpose under the new regime

Inheritance tax changes affecting farmers

The October 2024 budget brought significant changes to Inheritance Tax reliefs that have caused widespread concern within the farming community. Historically, if your farm and assets were structured correctly, they could pass to the next generation without an Inheritance Tax liability. That certainty has now been undermined.

From April 2026, a new system will be introduced that restricts APR and BPR. Every individual will have a £2.5 million allowance across both reliefs (increased from the initially proposed £1 million). Any qualifying agricultural or business assets over this £2.5 million threshold will receive 50% relief, rather than the previous 100%.

In practice, this means that farming families who once expected their land and business to pass tax-free could now face substantial tax bills.

Example: Inheritance Tax Impact on a Typical Farm

To illustrate, consider a typical 500-acre farm valued at £7 million that is owned jointly by a husband and wife. Assuming on the first death the surviving spouse inherited the whole of the farm, only a maximum of £5million of value would pass free of inheritance tax to the beneficiaries of the survivor’s estate. 

The remaining £2million would be eligible for relief at 50% meaning £1million of value would be subject to tax at 40% resulting in an inheritance tax bill of £400,000 

Under the previous regime the inheritance tax payable would have been nil if all the requisite conditions were met.

The importance of reviewing trust arrangements

Many farming families hold land and assets in trusts. Under the new regime, these trusts will no longer benefit from the previous levels of relief. Trusts holding farming assets will be subject to ten-year anniversary charges of up to 6%, and these charges will be calculated on values that exceed £325,000 and the same limited IHT reliefs that will apply to individuals (£2.5million BPR/APR allowance).

If some or all of your farming business is held in trust, it is essential to review these arrangements and assess whether Inheritance Tax liabilities could arise. If the trust was created before the October 2024 budget the trust will have grandfather rights before it reaches its next 10-year anniversary, but this could still mean that a charge will arise on this anniversary. If there is little liquidity in the trust it is really important to be aware now of what the liability might look like so that plans can be made well in advance about how the tax will be funded.

Read more about trust arrangements.

Structuring your farming business for tax efficiency

The first step in preparing for these changes is ensuring that your farm business structure qualifies for the maximum reliefs available. The way you hold the assets can make a significant difference.  Particular challenges can arise if your farming enterprise includes non-agricultural investments, such as cottages let to third parties; this could jeopardise eligibility for IHT relief in some cases and a review is highly advisable.

Family partnerships and companies as succession planning tools

Two commercial structures that might be used as part of a succession plan are family partnerships and family companies. These structures can enable you to:

• Transfer value to the next generation.
• Retain income and control over farming operations.
• Reduce the Inheritance Tax burden.

Achieving the tax and commercial aims can require something more sophisticated than a simple partnership structure or ordinary shares, but the advantages are usually worth it.

Preparing a robust partnership agreement

For families farming in partnership without a written agreement, it is vital to put one in place. Without it, the partnership is governed by the Partnership Act 1890, which may not reflect the family’s intentions. A partnership agreement:

• Clarifies ownership of assets.
• Determines what happens on the death of a partner.
• Helps ensure that Inheritance Tax reliefs are preserved.
• Minimises the risk of disputes between family members.

Equalising ownership between spouses

Under the updated rules, the £2.5 million APR and BPR allowance is fully transferable between spouses and civil partners, giving couples a combined £5 million full-relief allowance.

Whilst equalisation of assets is slightly less important now that we know the allowance is transferrable, if one of the couple holds all of the assets, it will be necessary to ensure that their will actually enables the other spouse to inherit some or all the assets so that the survivor’s allowance can also be claimed on their death.

There may also be some benefit to ensuring that any farmhouse which the couple reside in is owned equally so that (subject to conditions), the residence nil rate band allowance might be available for use on both deaths. This could potentially save up to £70,000 of tax.

Making lifetime gifts as part of succession planning

Gifting assets during lifetime can help reduce the size of your taxable estate. However, it is important to:

• Consider whether you can survive for seven years after making the gift.
• Ensure the gift does not trigger an immediate Capital Gains Tax liability.
• Review any Stamp Duty Land Tax implications if property is transferred.

Lifetime gifts should also take into account fairness between children. For example, parents might decide to make financial gifts to non-farming children to balance lifetime gifts of farmland made to farming heirs.

Protecting assets on divorce and other family risks

Farmers often worry about gifting assets to children who may later divorce. A well-drafted pre-nuptial or post-nuptial agreement can help protect family wealth from divorce claims. These agreements can safeguard the future of the farming business by ensuring assets stay within the family.

Updating wills to reflect succession plans

Updating wills is critical under the new Inheritance Tax regime. Without careful planning, valuable allowances could be wasted.

Options include:

• Leaving business and agricultural assets up to the £2.5 million allowance in a discretionary trust on first death to ensure flexibility as in certain circumstances it may be beneficial to use the first to die’s allowance on their death rather than on the surviving spouse’s death.
• Leaving the residue of the first to die’s estate on a flexible life interest trust so that the trustees can consider asset protection for the children (guarding against risks like remarriage and the payment of care home fees) and tax planning on behalf of the surviving spouse if the survivor has lost mental capacity.
• Leaving the surviving spouse’s estate on a discretionary trust for flexibility to assist with the distribution of the surviving spouse’s business and agricultural assets, and to enable the trustees to consider how to provide for any non-farming children.
• Ensuring the wills and partnership agreement are aligned to prevent disputes.

It is also important to consider whether children should share the burden of Inheritance Tax proportionately to the value of what they inherit.

Lasting powers of attorney for farming families

Succession planning is not just about death—it also involves planning for incapacity. A property and financial affairs Lasting Power of Attorney ensures someone you trust can run the farm if you lose mental capacity. In complex businesses, it may be appropriate to appoint separate attorneys to manage personal affairs and business interests.

Managing the risk of contentious probate claims

Poor succession planning can result in costly and damaging disputes. Common claims include:

• Proprietary estoppel, where children argue promises were made about inheriting the farm.
• Inheritance Act claims by family members who feel inadequately provided for.
• Will challenges based on lack of capacity or undue influence.

Open conversations, clear agreements, and up-to-date legal documents are the best ways to reduce the risk of disputes.

Read more about inheritance and trust disputes here.

Next steps for farming families

The new Inheritance Tax rules represent a major shift for farming families, but with proactive planning, their impact can be effectively managed. By reviewing business structures, wills, trusts and lifetime gifting strategies ahead of the April 2026 changes, families can ensure they are making full use of the increased £2.5 million APR/BPR allowance, and the £5 million combined allowance available to couples.

If you are concerned about how the updated reliefs may affect your farm or would like to review your succession planning before the new rules apply, our dedicated agriculture team is here to help.

This content is provided for general informational purposes only and does not constitute legal advice. It is not intended to address the circumstances of any individual or entity, nor should it be relied upon as a substitute for specific advice from a qualified solicitor. The information reflects the legal position as at the date specified and may be subject to change. If you require advice on a specific matter, please contact us directly.