1. Agricultural Relief (AR)

Farmers and their families can minimize or avoid Inheritance Tax (IHT) by leveraging several legal reliefs, planning tools, and exemptions designed to protect the transfer of agricultural assets. Here’s a ChatGPT breakdown of strategies commonly used by farming families:

• How it works: Agricultural Relief provides up to 100% IHT relief on the agricultural value of qualifying farmland, buildings, and livestock. The main condition is that the assets have been owned for at least two years by the deceased or have been farmed for agricultural purposes for at least seven years if the land is rented.
• Key point: Only assets used directly for agriculture are eligible. Any additional value beyond the “agricultural value” of the property may still be subject to IHT unless other reliefs apply.
• Potential Changes: There are ongoing discussions about tightening these reliefs. Proposed adjustments include stricter eligibility criteria, potentially reducing relief rates, or limiting relief to smaller family farms rather than large-scale agricultural operations.

2. Business Property Relief (BPR)

• How it works: Business Property Relief offers up to 100% IHT relief on qualifying business assets. Farming businesses generally qualify, including farming partnerships and shares in agricultural companies.
• Combining AR and BPR: Any portion of the farm that doesn’t qualify for Agricultural Relief might still qualify for Business Property Relief, especially for assets used in trading activities or that exceed their agricultural value.
• Cap on Agricultural Property Relief (APR) and Business Property Relief (BPR): From April 2026, the combined value of assets that can qualify for 100% IHT relief under APR and BPR is capped at £1 million. For any value exceeding this threshold, only 50% relief applies, effectively taxing the remaining value at 20% (half of the standard 40% IHT rate)​ Clayton & Brewill​
• PM+M. This is a major shift, as previously, family farms and agricultural assets were often fully exempt from IHT, enabling seamless intergenerational transfers without substantial tax burdens.
• Non-Transferability of the New Cap: Unlike the nil-rate band for general estates, the new £1 million relief cap for APR and BPR is not transferable between spouses. This means that each individual farm owner has a single £1 million allowance, which could further increase tax liabilities for family-owned farms where both spouses hold significant assets​ – Clayton & Brewill.

3. Gifting Assets and the 7-Year Rule

• How it works: If you give away assets and live for at least seven years after the transfer, these assets fall outside the estate for IHT purposes. This “potentially exempt transfer” can be an effective way to pass on parts of the farm gradually.
• Using trusts: Assets can be placed in trusts for beneficiaries, potentially securing them from IHT after seven years while maintaining control over how they are managed and used.
• Potential Changes: Proposals suggest extending the 7-year rule to 10 years or revising taper relief, which currently reduces IHT on gifts made three to seven years before death.Impact: Extending the timeframe would make lifetime gifting a more challenging option for farmers aiming to reduce their estate’s taxable value. A longer wait could result in higher IHT exposure if the donor passes before the revised timeframe.

4. Use of Trusts for Succession Planning

• How it works: Trusts allow farmers to pass assets to future generations while setting terms around their use and providing some IHT relief. Trusts such as discretionary trusts can remove assets from the taxable estate if they are set up correctly and assets remain in the trust for seven years.
• Consideration: Trusts are subject to complex rules, and professional advice is essential to avoid tax pitfalls or unexpected tax charges.

5. Life Insurance Policies in Trust

• How it works: Taking out a life insurance policy to cover IHT liabilities can be a practical way to ensure that heirs can pay any due tax without selling off farm assets. By putting the policy in trust, the payout is excluded from the estate and goes directly to beneficiaries.
• Consideration: While this doesn’t eliminate the IHT liability, it provides liquidity, which can be essential for paying taxes without having to sell parts of the farm.

6. Passing the Farm Gradually

• How it works: Gradually transferring ownership and operational control to the next generation over several years can reduce the value of the estate for IHT. This could involve transferring machinery, livestock, or parts of the business while maintaining a working role.
• Consideration: This requires careful management, particularly to meet criteria for BPR and AR, and to ensure eligibility for these reliefs during any transition period.

7. Diversification of Assets

• How it works: Keeping assets used for agricultural purposes is crucial for relief eligibility. Avoid activities that convert agricultural assets into residential or commercial ones, as this can disqualify assets from Agricultural or Business Property Relief. Be mindful of changes to the farm that could inadvertently remove relief eligibility.

8. Pre-Planning with Professional Advice

• Why it’s important: IHT planning for farmers is complex, especially given changes in tax legislation and the evolving definitions of qualifying agricultural property. Engaging with agricultural tax professionals and estate planners ensures compliance and maximizes available reliefs.

Potential Planning Strategies: Given the changes, farmers may need to consider new IHT planning strategies. Options include transferring ownership early to family members, using trusts to help manage asset transfers, and updating wills to ensure tax efficiency. Life insurance policies set in trust might also provide funds to cover potential tax liabilities​