How can farming families prepare for the upcoming Inheritance Tax changes?

Simple steps to protect your farm and limit tax bills

Big changes are coming for farming businesses when it comes to inheritance tax. Nine months on from the Autumn Budget, the Government has now released draft legislation to introduce the reforms that will affect how much tax your family might have to pay on your farm or business assets after April 2026. Here’s what you need to know, along with practical tips for planning ahead.

What’s changing?

Until now, many farming families could pass on their farm or business to the next generation without having to pay much, if any, inheritance tax — thanks to Agricultural and Business Property Reliefs. But from 6 April 2026, this will change.

Each person will have a £1 million allowance for qualifying farm and business assets, which will be free of inheritance tax. Anything above this amount will be taxed at half the usual inheritance tax rate (currently 40%) – so an effective rate of 20% tax.

For example, if you have £5 million in qualifying farm and business assets and you die after 6 April 2026, the first £1 million is tax-free, but the remaining £4 million would be taxed at 20%. That means a bill of £800,000 for your family. This can be paid off over ten years without interest, but it’s still £80,000 per year – a big cost for most farms.

Will the £1 million allowance increase?

The draft legislation includes the ability for a future government to increase the allowance in line with inflation starting in April 2030, but the government doesn't have to increase it. For reference, the main inheritance tax threshold of £325,000 hasn't changed in over 15 years, so it's best not to rely on an increase.

Can you give away assets to reduce tax?

Yes, you can – but being careful of the complex rules in this area and not leaving yourself short of assets. One impact of the changes is that they are encouraging families to have conversations about how they envisage a farm continuing, and passing parts of the business on, earlier. 

Giving away farm or business assets while you're still alive is a very useful way potentially to reduce the amount of tax payable later. If you want to keep control or it's not the right time to pass assets to family now, you can also put assets into a trust. Before 6 April 2026, you can move any amount of qualifying farm and business assets into a new trust without immediate tax. On or after that date, you'll be limited to £1.65 million every seven years. 

If you are considering making either an outright gift, or a gift to trust, the earlier you can do this the better.

Is the £1 million allowance transferable to a spouse or civil partner?

Unfortunately, no. Unlike some other tax allowances, your £1 million allowance can't be passed to your spouse or civil partner if you don't use it. This means it's really important to plan ahead, so the allowance isn't wasted when the first spouse / civil partner passes away. 

Practical planning tips

• Consult your advisors: Arrange a meeting that includes your solicitor, accountant, land agent, and financial advisor. Each person in this group can contribute their knowledge and expertise to come up with the best plan for you and your family.
• Get the whole family involved: If possible, have both older and younger generations at the meeting. Open discussions help everyone understand the changes and agree on a plan.
• Find out what you might owe: Ask your solicitor or accountant to work out your possible inheritance tax bill under the new rules. This will help you see which assets most affected and what steps to take.
• Consider gifts and trusts: Think about whether you can give assets away now and consider trusts if you want to keep control of certain assets.
• Act early: If you’re thinking about making gifts or setting up a trust, it’s best to do this as soon as you can.

Final thoughts

The new inheritance tax rules mean that planning is more important than ever for farming families. By taking action now, you can help protect your family business and pass on more to the next generation. If you're unsure where to start, talk to your professional advisors.