Protecting a Farm from Inheritance Tax
For fifty years, family farms passed to the next generation almost tax-free. From April 2026, they don't.
The £1 million cap on Agricultural Property Relief and Business Property Relief is the biggest change to farm succession in a generation. Most farming families we speak to have not yet done the maths.
The real problem
Until April 2026, the agricultural value of a qualifying farm passes to the next generation with 100% Agricultural Property Relief. Farmhouse, farmland, farm buildings — all effectively free of Inheritance Tax.
From April 2026, that 100% relief is capped at a combined £1 million per person, shared with Business Property Relief. Everything above £1 million attracts relief at only 50%, meaning the effective IHT rate on qualifying assets above the cap becomes 20% — payable over ten years but payable all the same.
A modest 200-acre Dorset farm with a farmhouse can be worth £4-6 million. A share of £3-5 million above the cap becomes taxable. That's a six or seven-figure IHT bill on an asset the family has no intention of selling.
What's changed
The Autumn 2024 Budget introduced the cap. It applies from 6 April 2026 for deaths and chargeable transfers on or after that date. Lifetime gifts made now, if the donor survives seven years, still fall outside the new rules — which is exactly why the next 12-18 months are the planning window.
The cap is per person, not per farm. A married couple with proper planning can shelter £2 million between them. Without proper planning, one spouse's cap is often wasted.
The 'agricultural value' definition itself hasn't changed — but its usefulness has narrowed, because everything above the cap now needs a different plan.
What this looks like in practice
A working farm valued at £5 million, owned in one name, passing on death after April 2026: roughly £4 million above the cap, taxed at 20% effective — an £800,000 IHT bill. Payable in ten annual instalments of £80,000 plus interest, from a farming business that may generate £40-60,000 of profit in a good year.
The practical outcome, without planning, is a forced sale of land — often the best land, because it sells fastest — to pay HMRC.
With planning: gifts of land to the next generation now, farmhouse ownership split between spouses, both £1 million caps used, life cover written into trust to fund what tax remains, and — where the numbers justify it — restructuring the farm into a partnership or LLP that separates the operating business from the land.
Real Story
The Dorset farm with a hidden tax problem
A 240-acre farm, three generations, and a tax bill nobody realised was coming. What we found and what the family did.
Read the storyWhere you live matters less than you'd think
HMRC applies the same rules whether the farm is in Devon or Durham. What varies from one region to the next is asset value and family shape, not the tax code.
We work nationally by video call. Documents are signed remotely or couriered when wet signatures are needed. Almost every client we've helped with this problem in the last twelve months has never set foot in our office — and none of them received worse advice for it.
The local estate planner you were referred to may or may not have handled this specific situation before. The right question is not "are they nearby?" but "have they done this ten times?"
What we'd actually do
- 1
Understand the estate
A short, structured conversation about what you own, where it sits, and who is meant to receive it. No jargon and no product pitch. This alone often reveals the problem.
- 2
Estimate the potential exposure
We estimate the potential exposure — including the changes coming in 2026 and 2027 — and identify which areas need legal drafting, regulated advice, or tax input. You see the shape of the problem, not an assumption.
- 3
Design the plan in the right order
We tell you which two or three decisions move the needle, and which are decoration. Most estates need three or four things done properly, not everything.
- 4
Put it in place and review
Documents drafted, structures set up, life cover written into trust where relevant, and a review schedule so the plan tracks your life instead of gathering dust.
Common questions
Does the £1m cap apply to each spouse separately?
Yes. Each individual has their own £1m cap for combined APR and BPR at the 100% rate. With careful ownership planning, a married couple can preserve £2m of relief between them. Without it, one spouse's cap can be wasted entirely.
If I gift land to my children now, is it safe from the new rules?
Provided you survive seven years from the date of the gift and you don't continue to benefit from it — no rent-free retention, no reservation of benefit — the gift falls outside your estate under the standard PET rules. The window to start that clock is now.
What about tenanted land?
Let land can still qualify for APR at 100% (if let on a post-1995 farm business tenancy) or 50% (if let on an older Agricultural Holdings Act tenancy), subject to the same £1m combined cap. The cap doesn't distinguish between owner-occupied and let.
Should we incorporate the farm?
Sometimes. For some farms, moving the operating business into a limited company and holding the land personally (or in a separate LLP) can create room to use both BPR and APR more efficiently. For others it creates cost without benefit. It's a modelling exercise, not a default answer.
Two ways forward — pick the right lane
Some of what this page covers is drafted and delivered by IMS. Some needs a regulated adviser. Use the CTA that matches what you're actually asking for.
Regulatory notice. Inheritance Made Simple is not authorised or regulated by the Financial Conduct Authority. Where clients require regulated investment or pension advice, introductions are made to independently FCA-regulated advisers.
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