IHT and Family Farms

The Autumn 2024 Budget: What the Inheritance Tax Changes Mean for Family Farms

The Autumn 2024 Budget, presented by Chancellor Rachel Reeves, has introduced sweeping changes to the inheritance tax (IHT) system. These reforms—particularly the overhaul of Agricultural Property Relief (APR) and Business Property Relief (BPR)—are the most significant adjustments to IHT in decades. At Maxwells Chartered Accountants, we’re here to help farming families navigate these changes and prepare for the future.

Key Changes to APR and BPR

From 6 April 2026, the government will introduce a combined £1 million allowance for assets qualifying for 100% APR and BPR. This allowance will apply to:

• Property within an estate upon death.
• Lifetime transfers within seven years of death (failed potentially exempt transfers).
• Chargeable lifetime transfers (e.g., property transferred into trusts).

For estates exceeding this £1 million threshold, the relief rate will drop to 50%. For example, an estate with £2 million in qualifying assets will receive 100% relief on the first £1 million and 50% relief on the next £1 million. This could result in a potential IHT liability of £200,000—an effective rate of 10% before other exemptions are applied.

What This Means for Farming Families

The government claims these reforms will only affect a minority of estates, but at Maxwells, we share the concerns of many in the agricultural sector. Farms are unique assets, with significant landholdings and business property values often exceeding £1 million. These changes could transform the way farming families approach succession and tax planning.

Traditionally, many farming families retained assets within the older generation’s estate to benefit from 100% APR or BPR upon death. With the new relief limits, this approach may no longer be optimal.

Strategic Considerations for Your Family Farm

Here’s how farming families should prepare:

• Lifetime Gifting
  Transferring parts of the farm to the next generation during your lifetime could reduce future IHT liabilities. Using gift hold-over relief, you can defer capital gains tax, and if you survive seven years after the gift, the asset leaves your estate for IHT purposes. However, gifting assets comes with risks, such as exposure to divorce settlements or financial instability of the recipient.
• Maximizing the £1 Million Allowance
  Where land or property is solely owned, consider transferring ownership to a spouse to utilize their £1 million allowance. Such transfers between spouses are tax-neutral but could provide substantial savings in the long term.
• Updating Wills and Succession Plans
  Wills should be reviewed to reflect the new IHT landscape. In some cases, passing property directly to the next generation upon the first spouse’s death—rather than deferring to the surviving spouse—might make better use of the allowances.
• Insurance as a Safety Net
  Life insurance policies could provide a practical solution to cover potential IHT liabilities, ensuring that the farm does not need to be sold to settle tax bills.
• Trusts and Their Role
  While not suitable for every family, trusts can protect assets and provide flexibility in estate planning. The government’s upcoming consultation on trusts in early 2025 may clarify how they can be utilized under the new rules.

Planning for the Future

The new IHT rules present challenges, but they also offer opportunities for careful planning. At Maxwells Chartered Accountants, we’re committed to supporting farming families through these transitions. Our team will work closely with you, your solicitor, and other advisors to develop a strategy tailored to your needs.

What Should You Do Next?

• Document Everything: Start by thoroughly recording land ownership, business property, and partnership agreements.
• Consult Experts: Tax planning is more complex than ever. Engaging with specialists will ensure you’re making the best decisions for your family and business.
• Act Early: With the changes coming into effect in 2026, there is still time to act—but don’t delay.

At Maxwells Chartered Accountants, we have a long history of working with farming families. We understand the unique challenges you face and the importance of preserving your legacy for future generations. If you’re concerned about how these changes will affect your farm, get in touch with us today. Together, we can navigate the new IHT landscape and secure the future of your family business.