UK farm succession planning: a practical guide to the new tax rules

How do the 2026 tax changes affect farm inheritance?

Farming families faced one of the biggest changes to their livelihoods in many years on April 6 this year. 

Thanks to a change announced in Chancellor Rachel Reeves’ 2024 Autumn Budget, farmers lost the ability to pass farms down to their children without any inheritance tax being paid. 

Although Reeves has watered down her original plans, many farmers fear their children could end up with a large tax bill and could even need to break up the family farm to pay HMRC.

With good financial planning, though, farming families can still take steps to pay less tax and put themselves on a firmer financial footing.

Here’s what they need to know.

What has changed with farm inheritance?

Farming families used to be able to use a 1984 tax rule called Agricultural Property Relief to pass down their farms inheritance tax free.

This prevented farms from being split up to pay expensive tax bills.

There’s now a cap on the value of a farm and business assets that an individual can pass down tax free, meaning that more farming families will have bills when there’s been a death.

Originally the cap was £1m each, but that has been increased to £2.5m after protests.

The changes will lead to big bills for some families, but there are some reliefs to help.

A farming couple can inherit one another’s allowances, meaning that a farm worth £5m can be passed down to other family members tax free if it is owned by a married couple.

Furthermore if any portion of the value of the farm is over the limit, IHT is charged at 20% rather than the 40% that is charged on other assets, bringing down bills considerably.

How much might farming families pay in IHT?

Despite the mitigations, IHT bills for farming families can still be a shock.

Farms can often be valued highly due to the amount of land needed to support a small amount of income when growing crops.

Around a quarter of the farms in England are now worth over £3m, and many will be worth far more than this, meaning that they will fall into the net for IHT.

Here is a worked example showing how much a family might pay in tax on a farm that they inherit.

For farming families left with large bills, the government will allow payment to be spread over ten years interest free, which can be helpful if land or equipment would otherwise have to be sold to pay the tax.

But many will wish to do as much as they can to ensure that their families aren’t saddled with these large bills in the first place, which is why they may want to speak to a specialist financial adviser about their options for succession planning.

How can farmers succession plan?

Just like anyone else who is worried about inheritance tax, farming families can consider giving away money while they are alive to ensure that their families pay less tax later.

The ‘seven-year rule’, which means that no IHT is payable on money given away seven years or more before you die, applies to farms as well as other assets.

Splitting farm ownership between family members, using trust structures and passing on part or all of a farm to children are all ways in which farming families can potentially cut the IHT bills their families will pay.

One quirk of the new system is that those who inherited a farm from their spouse or civil partner are treated as though they have their partner’s full £2.5m IHT allowance, even if their partner died many years ago.

The legal structures surrounding farming and IHT are complex, and if incorrect decisions are made your family could end up with even higher bills than expected.

You may also find you are liable for capital gains tax if you transfer assets, so it is sensible to take advice from a qualified adviser who is a specialist in this area before making any decisions.

What’s more, succession planning for farming needs to be about more than tax, since you’ll want to ensure that the farm can still function and that family members are content with the future plans for the business.

Thinking about succession as early as possible is key to a successful transition. 

This can help you to have time to identify the right successors, ensure they have had appropriate training and create a phased approach for handover.

How can professional advice help farmers with succession planning?

Involving a professional adviser in your discussions about succession planning for the family farm can help you to clarify what you need.

You can use Unbiased’s adviser matching service to find advisers with the right experience by selecting those with business expertise and searching for those with knowledge of Agricultural Property Relief or Tax & Trusts planning.

The right adviser can help with suggested structures, ensure the correct decisions are made and be a neutral sounding board for difficult family dynamics.