Inheritance Tax Update

There was much concern throughout the farming community after the October 2024 Budget announcement that 100% Agricultural Property Relief (APR) and Business Property Relief (BPR) would be limited to a non-transferable allowance of £1m per person from April 2026.

Not only was the proposed £1m limit low relative to the average family farm value, but making the allowance non-transferable was both unfair (because the nil rate band and residence nil rate band are transferable) and it required many couples to change their Wills simply to achieve the relief (£1m each) that Government said should be available.

Relaxations

Following strong lobbying by farming organisations, two major relaxations were announced on 26 November and 23 December 2025 – firstly that the 100% APR/BPR allowance would be transferable, and secondly that the limit would be £2½m per person (rather than £1m).

For many Devon family farms, those changes removed the immediate prospect of inheritance tax (IHT) on the farm.

Larger farms are still impacted but most families do not have more than £5m of business asset value, and making the allowance transferable allows couples to continue with the common Will structure that leaves assets to the surviving spouse on first death, for maximum security.

Continuing problems

While the late 2025 changes are extremely welcome, there remain some serious problems:

• The £2½m allowance is due to be indexed, but only by CPI inflation, and only from 2031. In practice, it is likely that asset values will rise faster than the allowance, bringing more family farms into IHT as time goes on.

• The October 2024 Budget also announced that pension funds will be subject to IHT from April 2027. For some families, this will disproportionately increase IHT liabilities by pushing the estate value above the level at which eligibility for the residence nil rate band is restricted or forgone.

• Government have indicated that pension funds will not qualify for APR or BPR. Assuming the final legislation reflects that, farmers who have purchased land in a pension fund will have no IHT relief at all on that land – not even the 50% relief available for personally or partnership owned land exceeding the £2½m allowance. In some cases, consideration may need to be given to buying the land back out of the pension fund (which may be a slow and expensive procedure) and, in other cases, plans will have to be made for funding the extra IHT.

Continued importance of capital tax planning

Given the record of past announcements and revisions, it would be premature to buy farmland out of a pension fund until we have more certainty on the detail of the pension IHT arrangements.

However, farmers should not assume that the late 2025 changes have fully resolved their IHT problems; it remains important to consider the particular circumstances and to make plans accordingly. For some families, that might still mean passing on a (limited) proportion of the asset value to the next generation at an earlier stage than would have been considered just a few years ago.

IHT planning is not about reacting to a single Budget announcement. An effective plan needs to build resilience against an uncertain future: asset values, future governments, relationship breakdown, and even life itself cannot all be reliably predicted.

If you have any queries, get in touch with our agricultural team, we would be glad to assist you with your capital tax planning.