Farmers’ Betrayal – changes to the Agricultural Property and Business Property Reliefs

October 31st 2024

Suffice it to say, the Government’s much-discussed autumn budget has left farming circles in dismay, with some taking to social media calling for nation-wide protests and strikes. Jeremy Clarkson did not mince his words stating that  farmers have been “shafted” by Labour. Kirsty Allsopp accused the Chancellor of destroying farmers’ ability to pass down the family farm to their children on death and of having “ZERO understanding” of rural matters. The Country Land and Business Association President Victoria Vyvyan, simply called the reform “dynamite beneath the livelihoods of British farming”.

The blow came when the Chancellor announced that from 6 April 2026, in addition to existing nil rate bands and exemptions, the current 100% rates of (Agricultural Property Relief) APR and (Business Property Relief) BPR will continue for the first £1m of combined agricultural and business property. Over this cap, inheritance tax will apply, but with 50% relief, with assets thereafter taxed at an effective rate of 20%. These measures will apply to charges on death AND also to lifetime transfers into trusts or to individuals. 

The £1m tax-free threshold will do little to mitigate the IHT bill on an average farm, given that such operations are usually asset rich, yet cash-poor. Given that an average farm in England is 88ha, the IHT liability might be in the region of £200,000 to £400,000. Some commentators have predicted that farmers and estates may be forced to sell land or property to meet the IHT liability, placing the future of a family farm in jeopardy thus further destabilizing sustainable food production. 

Is it all doom and gloom? Perhaps not.

Small farms where the farmhouse is one of the main assets will still have the benefit of the nil rate band and the residential nil rate band. If the estate is left to a surviving spouse and then to direct descendants, the total tax-free amount will come to £1m in addition to the £1m APR threshold. There is also an option to repay the IHT liability in installments over 10 years, which would permit many to retain the land, however this form of payment will attract interest. 

Younger farmers can also consider obtaining insurance to meet the IHT liability in the future and perhaps look at restructuring the farm and business to ensure that they obtain all available IHT reliefs. 

Keeping longevity and generational thinking in mind, farmers can also consider lifetime gifts to their descendants. When land is gifted, it will leave the donor’s estate for IHT purposes if they survive for 7 years from the date of the gift with additional tapering relief available. Although a gift may be treated as disposal for CGT purposes, the tax bill can be postponed if the land is used for farming purposes and certain conditions apply. The CGT can also be postponed if the land is transferred to a discretionary trust, which carries an additional advantage of the donor being able to retain a degree of control and future proof the ownership to a certain extent. 

Lifetime giving has some potentially costly pitfalls associated with it, particularly if the donor wishes to continue farming the gifted land without a rental agreement in place, which could cause a gift with reservation of benefit to arise. It is therefore extremely important to seek comprehensive legal advice in relation to tax and succession planning. 

 

 

 

“This puts dynamite beneath the livelihoods of British farming, and flies in the face of growth and investment. In its attempts to raise more revenue the government will cause great damage, jeopardising the future of rural businesses up and down the country." The Country Land and Business Association President Victoria Vyvyan