This appendix provides a more detailed overview of how inheritance tax applies to farming assets under the revised proposals, and the points that farming families should be considering now.

1. Key Reliefs Explained

Agricultural Property Relief (APR)
APR can reduce the taxable value of qualifying agricultural property by up to 100%. It generally applies to:

• Agricultural land and pasture
• Farmhouses (subject to occupation and character tests)
• Agricultural buildings
• Certain associated rights and quotas

APR normally requires:

• Two years’ ownership if farmed by the owner or their spouse/civil partner
• Seven years’ ownership if let to a third party

Business Property Relief (BPR)
BPR may apply to:

• Farming businesses carried on as sole traders or partnerships
• Shares in unquoted trading companies
• Certain assets used in a qualifying business

BPR can also provide 100% relief, but is more sensitive to issues such as:

• Investment vs trading activities
• Cash balances
• Let property and diversified income streams

2. Revised Inheritance Tax Thresholds (Proposed)

Under the government’s revised approach:

• 100% APR/BPR is expected to apply up to £2.5 million per individual
• Married couples or civil partners may therefore shelter up to £5 million of qualifying assets
• Value above this threshold may still qualify for partial relief, reducing (but not eliminating) inheritance tax

These changes are expected to apply from 6 April 2026.

3. Interaction with Other IHT Allowances

APR and BPR sit alongside, not instead of, standard inheritance tax allowances:

• Nil-rate band (£325,000 per person)
• Residence nil-rate band (subject to conditions and tapering)
• Transferability of allowances between spouses/civil partners

In practice, a well-structured estate can combine multiple reliefs, but sequencing and ownership are critical.

4. Common Risk Areas for Farmers

Farming estates frequently encounter problems that can restrict relief:

• Let property or diversified activities (e.g. holiday lets, storage units)
• Excess cash held on balance sheets
• Farmhouses not clearly occupied for the purposes of agriculture
• Assets owned personally but used by a partnership or company
• Outdated partnership agreements or informal arrangements

These issues should be reviewed well in advance of succession.

5. Lifetime Planning Considerations

Farmers may wish to consider:

• Lifetime gifts of land or business interests (subject to capital gains tax and clawback rules)
• Use of partnerships or corporate structures
• Reviewing tenancy arrangements and diversification income
• Ensuring wills align with current ownership and relief eligibility

Lifetime planning should always consider both inheritance tax and capital gains tax, as well as family and commercial objectives.

6. Valuation Matters

HMRC scrutiny of agricultural valuations is increasing. Key points include:

• Agricultural value vs development or hope value
• Correct apportionment between qualifying and non-qualifying assets
• Evidence to support farmhouse eligibility

Professional valuation advice is often essential when estates are significant.

7. Importance of Regular Reviews

Even where no tax is expected, farming clients should regularly review:

• Ownership structures
• Partnership or shareholder agreements
• Wills and succession intentions
• Diversification activities

Tax rules, land values, and family circumstances all change over time.

8. Professional Advice

Inheritance tax planning for farming families is complex and highly fact-specific. Reliefs are valuable but conditional, and errors can be costly.

Early advice allows time to:

• Identify risk areas
• Adjust structures where appropriate
• Avoid rushed decisions following illness or death

If you would like to review your farming business or estate planning position, we recommend taking advice well ahead of April 2026.