How good succession planning now can reduce farm IHT impact on next generation

Owners of farms and estates are urged to review and evaluate their assets swiftly and initiate conversations with family and advisers ahead of inheritance tax (IHT) reforms planned for April 2026. 

Changes to agricultural property relief (APR) and business property relief (BPR) announced in the October 2024 Budget have accelerated the necessity for good succession planning to minimise their impact on future generations.

During a recent Brown&Co webinar, the potential impact of the changes was thrown into sharp focus with a case study on a 1,000-acre arable farming business with a husband and wife trading as a partnership but with the land and property in his name.

Paul Waberski, head of the agri-business consultancy at Brown&Co, says while the value of assets, including machinery and stock, could be in the region of £14m, in current trading conditions the business might expect to generate an annual profit of just £70,000 - £100,000.

If the husband died the estate would incur £2.6m IHT. If that sum was paid interest-free over 10 years, as the government has stated it would allow under its reforms, it would amount to £260,000 a year.

“A business that's making £70,000 - £100,000 profit just couldn’t afford to pay the tax bill,’’ Paul pointed out.

Options for businesses like this facing IHT liabilities from April 2026 were scrutinised by experts from Brown&Co at the webinar.

The main changes to IHT from April 2026 are the introduction of a £1m 100% allowance for an individual’s combined property value qualifying for 100% APR, 100% BPR, or both.

Thereafter, only 50% relief will be available on combined qualifying property. Currently, qualifying assets attract either 100% or 50% relief on death, depending on the asset type.

An acronym, C.R.E.A.M, coined by Brown&Co, sums up a recommended five-point plan – Calm, Review, Evaluate, Assess and ascertain and Meet with advisors.

A degree of panic has ensued in the months since the reforms were announced but Paul advises calm because many farmers have the timeframe to instigate measures to alleviate IHT liability.

“Doing nothing is not an option and we're fortunate in the industry to have good advisers to help us through this,’’ he said.

Undertaking a full review of assets is the first vital step to tax planning and succession and could reduce the tax liability.

To do this, draw up a list of all items that might come into charge for IHT.

Simon Alden, land agency partner at Brown&Co, recommends compiling a schedule of property to establish who owns and occupies properties, how those properties are used, and, importantly, how long they have been subject to a specific use. 

For APR purposes, this applies not only to agricultural land, agricultural buildings, farmhouses and farm cottages but to ancillary assets such as woodland and shelter belts. 

BPR applies, among other items, to machinery, livestock, and crops in the field or in storage. Farm shops, offices, workshops and storage buildings that are owned by family businesses may also fall under BPR.

While these should all be considered under an IHT review, other items might also come into charge for the tax, such as investments, pensions, life insurance policies, savings and rental properties.

These will be subject to a 40% tax charge once the personal nil rate band of £325,000 per person. With regards to the residential nil rate band of an additional £175,000 eligibility depends upon the estate’s overall value.

“It's then a question of establishing who owns those assets and that isn't always obvious, indeed there are plenty of people who don't actually understand where those assets are held, they may be held within a company or partnership for example,’’ said Simon.

“This is where accountants and solicitors come in, to establish where these assets are held.’’

Locate copies of documents such as tenancy agreements showing occupation.

Once the review has been initiated, assets must be valued.

Charlie Bryant, a land agency partner at Brown&Co, said this doesn’t need to be a formal valuation at this stage, although this will be required if assets are to be transferred.

Valuations are likely to be considered by HMRC going forward, investigated and possibly challenged in some cases, he added.

The schedule of assets and valuation will help to inform the tax liability of everyone in the business to enable solutions to be considered.

Aspirations of family members should be part of that process – a principal ambition of agricultural businesses is to create a situation that allows those who are farming the best chance to continue while creating a fair outcome for others not involved.

It is helpful to provide professional advisers with that vision to allow them to give the best advice.

Sudden asset transfers or sales as part of IHT planning can risk family disputes but having conversations that are “orderly, transparent and open’’ can minimise that risk and are important, even if they can sometimes be painful, said Simon.

The next stage is to have a wider meeting with tax, accountancy and legal advisors and other professionals such as land agents and agricultural business consultants.

“Since the October budget there has been a lot of brainstorming with trusted family advisers, people who know the family well and know the business and asset situation well,’’ said Charlie.

Every situation is different, with no “one size fits all” solution therefore seeking that professional advice is crucial.

To hear more about some of the measures farm businesses could adopt to reduce IHT liability listen to the webinar