On 7 April 2025, the Department for Environment, Food & Rural Affairs ('DEFRA') published its Farming Profitability Review, adding further dialogue to the public debate on the proposed reforms to the taxation of our agricultural communities. In response to the review, NFU Scotland has "urged the UK Government to immediately pause proposed changes to inheritance tax (IHT) for farmers until the newly launched review into farm profitability is complete". Katie Martin and Louise Garrett from leading IHT solicitors Hunters, explore the recent changes.
Despite unprecedented industry backlash to the government's proposed reforms to agricultural property and business property relief, the Treasury appears to be pressing ahead with the proposals, due to come into force from 6 April 2026, without any compromise on the alternative approaches presented by farming unions and associations.
The Treasury's drive to implement the changes without concession was demonstrated by further details published in its technical consultation which closed on 23 April 2025. We now await a response document, and the government will carry out a technical consultation on the draft legislation later this year.
The consultation confirmed any unused amount of the £1m individual allowance on the combined value of property that qualifies for 100% agricultural property or business property relief will not be transferable between spouses and civil partners. Therefore, if one spouse is the sole proprietor of the relievable assets, then shared ownership of those assets could ensure both £1m allowances are fully utilised. However, this might not be helpful in circumstances where a spouse is not intended to be the primary beneficiary, and particular caution will need to be taken in cases where family break down or divorce is an eventuality.
The Treasury also confirmed the £1m allowance for individuals on the combined value of agricultural or business property which will qualify for 100% relief will not be limited to a lifetime allowance. The allowance will refresh every seven years and operate like the nil rate band does when it applies to lifetime charges and chargeable transfers on death. The implication is that if the transferor dies within seven years there will be a failed potentially exempt transfer which may reduce the £1m allowance applicable on death.
In the context of gifting, it will be imperative for families not to fall foul of the reservation of benefit rules designed to prevent gifts with 'strings attached'. Robust estate planning will need to pay attention to ensure arrangements are fully compliant with the legislation. It would be advisable for families to receive advice at the time of a gift to ensure full market values are applied and the decision is properly documented, as well as any changes to the arrangement. The importance of regular rent reviews to ensure full market rent has been paid cannot be overstated to satisfy the conditions for an outright lifetime gift.
For trustees, there will be a £1m allowance on the combined value of agricultural or business property which will qualify for 100% relief settled into a relevant property trust. Agricultural and business property held in that trust will benefit from 100% relief up to a value of £1m on each 10-year anniversary charge.
If the government continues to drive forward with these reforms, testators who die after 6 April 2026 will only receive 50% agricultural property and business property relief above the individual £1m allowance (meaning IHT at a rate of 20% will be payable on agricultural and business property over the £1m). There will be an option to pay IHT on those assets by equal annual instalments over 10 years interest-free, but this is unlikely to reduce the anxiety farmers have over the measures. Individuals might want to explore life insurance policies to try and mitigate the IHT liability their estates will have to sustain.
Originally published by IFA Magazine.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
