If you’ve driven into rural areas recently, you’ll have seen the ‘Stop the Family Farm Tax’ posters – the rural community’s attempt to halt the forthcoming inheritance tax (IHT) changes to farms and businesses. Their attempts appear to have fallen on deaf ears as the publication of draft legislation in July indicates that these changes are going ahead, more or less as announced.
The changes will take effect on 6 April 2026, so we are in a transition period until then. This means that farmers and business owners should be sitting down with their advisers to consider what planning options might be appropriate. Here are five suggestions:
Review wills
Business and agricultural property is often left to a will trust, safe in the knowledge that it will be fully relieved. Depending on the value, that is unlikely to be the case after 6 April 2026, as 100% relief will be limited to the first £1m of business or agricultural property, with only 50% relief thereafter. A gift to trust on the first death could therefore bring forward an IHT charge. For a married couple it will usually be more efficient to leave everything to the survivor, allowing them to undertake further planning.
Spread business or agricultural property around the family
Everyone is entitled to a 100% relief allowance of £1m and it refreshes every seven years, much like the existing general nil rate band. So, whereas in the past it mattered little who owned the business or farm, in future it will be important to spread the value to family members, multiplying up the £1m allowances.
At the very least, each spouse should own £1m worth of business or agricultural assets. If one spouse dies owning no business property, their entitlement to the allowance is lost.
Early succession
The transition period before the new rules come in offers an opportunity to make gifts under the current system with 100% relief for qualifying business or agricultural property, provided you survive for seven years after the date of the gift. Gifting to the next generation now could therefore avoid the IHT charges. Even if you do not survive seven years, the tax charge is reduced by 20% each year from year 3 onwards.
There are potential downsides, however. Capital gains tax (CGT) is generally due on a gift in the same way as if the donor had received market value consideration. For business assets there is a form of relief, but it may not cover the whole CGT bill. In contrast, assets which pass on death are uplifted for CGT purposes to market value so that the beneficiary only pays CGT on gains since death. This does mean that if you die within the seven-year period after the gift, it’s possible to incur both a CGT and IHT charge.
You also need to be willing to forgo any benefit from the asset after gifting – so no income from the farm, for example – otherwise the gift is ineffective for IHT purposes. A gift of part of the farm or business might therefore allow the donor to both reduce estate value and maintain an income.
Gifts into trust
Getting qualifying property into a trust structure before 6 April represents a significant opportunity. A gift into trust before 6 April 2026 will take place under the current rules, so that transfers of qualifying business and agricultural property should not incur an IHT charge. For other assets transferred to a trust there is an IHT ‘entry’ charge of 20% of value exceeding the £325k nil rate band. Capital gains can be fully held over.
Under the new rules a trust will have its own £1m IHT relief, so this offers another opportunity to maximise the full relief for qualifying property. The £1m allowance will refresh every ten years. This will be important as trusts are subject to a form of IHT every ten years with proportionate charges on property leaving the trust between anniversaries.
So the trust structure does not escape IHT altogether. The ten-year charges are a maximum of 3% of the business/agricultural trust fund and will need to be paid. However, they occur at regular intervals and so can be planned for, whereas a date of death is unpredictable.
Other structures
Partnerships are very common in the agricultural sector and are a good way to share a family business or farm between family members and so maximise IHT reliefs. Structures using companies can take advantage of the fact that a company share is a bundle of rights including votes, capital and dividends to skew the value towards a class of shares held by the next generation. By attributing growth in value of the company to the younger generation’s shares, the value of the older generation’s shares is effectively frozen.