Despite opposition from farmers and others in the agricultural sector, a recent meeting between agricultural leaders and the Treasury regarding changes to Agricultural Property Relief has not led to any reversals. Ministers continue to stand by the proposed changes, meaning they are likely to remain in place. 

What are the changes? 

In the 2024 Autumn Budget, it was announced that Agricultural Property Relief (APR) for inheritance tax would be reformed. From 6 April 2026, the current 100% relief will only apply to the first £1 million of agricultural value. Any value above this threshold will be subject to inheritance tax. 

For example, a £4 million farm owned by a sole proprietor would be taxed as follows: 

• The first £1 million is inheritance tax-free. 
• APR applies at 50% to the remaining £3 million, meaning £1.5 million is relieved. 
• The remaining £1.5 million is taxable. 
• The Nil Rate Band (inheritance tax-free allowance) is £325,000, reducing the taxable amount to £1.175 million. 
• Tax is charged at 20%, resulting in a £235,000 tax liability. 

How to mitigate the impact 

There are measures that can help manage the proposed changes and reduce your inheritance tax liability. 

1. Transferring Assets into Joint Names & Making Separate Will Provisions 

If a farm is owned jointly, each owner benefits from the £1 million tax-free allowance. If you have not done so already, consider owning the farm as tenants in common, allowing each party’s share to be distributed according to their Will. 

Unlike some tax reliefs, the £1 million APR allowance is not transferable between spouses. If farmland is left to a surviving spouse, the deceased’s £1 million allowance is lost. To maximise the allowance for both spouses, Wills should specify that each spouse’s share of the farm passes to someone other than to their spouse directly. 

2. Discretionary Trust for Agricultural Property 

Instead of leaving the farm outright to a spouse, you may instead provide in your Will for your interest in the farm to be placed into a discretionary trust. This allows you to name both your spouse and children as beneficiaries, while still benefiting from the deceased spouse’s £1 million APR allowance. 

Since a discretionary trust does not give outright ownership to the spouse, the spouse is not treated as receiving the farm assets for tax purposes—thus preserving the tax relief. 

3. Gifting Farm Assets 

Gifting farm assets can be a useful estate planning tool. If you gift farmland and survive for seven years, no inheritance tax is payable on the gift. 

However, for the gift to be effective: 

• You must not retain any benefit from the land. 
• You cannot continue farming the land or receive rental income from it. 

Before gifting land, it is advisable to consult an accountant to assess any Capital Gains Tax implications. 

What should you do next? 

Estate planning is crucial. With guidance from our Wills and Property team, alongside your accountant, we can help structure your estate to minimise inheritance tax liability. Contact our Private Client department at 02920 345 511 or  estateplanning@berrysmith.com.