At the Autumn Budget on 30 October 2024, the Chancellor announced that APR (agricultural property relief) and BPR (business property relief) will be reformed.
From 6 April 2026, the full 100% relief from inheritance tax will be restricted to the first £1 million of combined agricultural and business property. This tax can be paid in instalments over 10 years, interest free.
Taken together with spousal exemptions and nil-rate bands that people can access for inheritance tax, the government has said this means two people with farmland, depending on their circumstances, can pass on up to £3 million without paying inheritance tax.
While this might be theoretically possible, it is unlikely that the full £3 million would apply to most married, farming couples. Those who are already widowed would not receive this level of relief.
Example scenarios
The following examples are anonymised, real farms and have been produced and collated by Armstrong Watson, Accountants, Business and Financial Advisers.
Prepared by David Threlkeld FCA, CTA, Partner and Head of Agriculture, Armstrong Watson LLP on 4 December 2024.
If you’re writing to your MP, you may find this information useful to help explain your individual situation.
Farms affected by IHT
The following are examples of family farms that would be affected by the government’s IHT reforms.
Family farm one
Business structure: Partnership
Family involved: Elderly married parents and their middle-aged son.
Brief summary of business:
- Dairy, sheep and arable farming
- 250 cow dairy herd
- 800 ewes
- Some arable cropping used on farm
Profitability: Average £40,000 p.a. over the past 5 years to split between 3 partners
Assets:
- c. 350 acres of land owned by Father
- Farm buildings, farmhouse and two cottages
- Livestock and machinery less debt
- Some tenanted land
Commentary on inheritance tax position:
If father passes away and leaves his estate, with an estimated value of £5.1m, to son:
| Date of death | Estimated inheritance tax liability (IHT) |
| Pre 5/4/26 (current reliefs) | £20,000 |
| Post 5/4/26 (APR/BPR restricted to £1m) | £775,000 |
| Consider: | |
| Post 5/4/26 (if APR/BPR restricted to £3m) | £375,000 |
| Post 5/4/26 (APR/BPR restricted to £4m) | £175,000 |
| Post 5/4/26 (APR/BPR restricted to £5m) | £20,000 |
The family farm does not generate sufficient profits to:
- Pay the £775,000 IHT in instalments over 10 years.
- Repay a 20-year term loan taken out to fund the £775,000 IHT.
Annual payments of more than £70,000 would be needed for either of the above options and a term loan may not be an option.
Land would have to be sold and the farm may no longer be viable. There are significant fixed costs associated with maintaining the infrastructure to milk a smaller dairy herd. A reduction in stocking following a sale of land reduces contribution towards fixed cost reducing the currently weak profitability further.
There are positive outcomes should the restriction be increased to £5m being:
- The IHT liability remains manageable at £20,000, even after the reforms.
- The farm can continue operating without the need to sell land or assets.
- The family can maintain their current level of profitability and continue their farming operations without significant financial strain.
- The stability provided by the manageable IHT liability allows for long-term planning and investment in the farm’s future.
This scenario demonstrates how the government’s planned reforms, with higher relief thresholds, can help family farms remain viable and sustainable. The same applies to the other family farms below.
Family farm two
Business structure: Partnership
Family involved: Elderly married parents. Children and grandchildren are not yet partners but are seen as the succession and the plan is for the family to continue farming.
Brief summary of business:
- 100 beef cows.
- Arable.
Profitability: Average £57,000 p.a. over the last five years to split between two partners.
Assets:
- c. 450 acres of land owned by husband
- Farm buildings, farmhouse and one cottage
- Livestock, machinery and some cash
Commentary on inheritance tax position:
If husband passes away and leaves all of his estate with an estimated value of £6m to his daughters where the succession is seen:
| Date of death | Estimated inheritance tax liability (IHT) |
| Pre 5/4/26 (current reliefs) | £120,000 |
| Post 5/4/26 (APR/BPR restricted to £1m) | £1,005,000 |
| Consider: | |
| Post 5/4/26 (if APR/BPR restricted to £3m) | £605,000 |
| Post 5/4/26 (APR/BPR restricted to £4m) | £405,000 |
| Post 5/4/26 (APR/BPR restricted to £5m) | £205,000 |
The family farm does not generate sufficient profits to:
- Pay the £1,005,000 IHT in instalments over 10 years.
- Repay a 20-year term loan taken out to fund the £1,005,000 IHT.
Annual payments of c£100,000 would be needed for either of the above options and a term loan may not be an option.
Land would have to be sold and the farm may no longer be viable.
Family farm three
Business structure: Partnership
Family involved: Elderly married parents. Son and daughter-in-law both in their fifties.
Brief summary of business:
- Beef and sheep.
- 100 beef cows.
- 2,000 ewe flock.
Profitability: On average, broke even over the past five years.
Assets:
- c. 800 acres of land mostly owned by father and mother.
- Farm buildings, 2 x farmhouses and two cottages.
- Livestock and machinery.
- Some tenanted land.
Commentary on inheritance tax position:
If father and mother pass away and leave all of their estate with an estimated value combined value of £4.8m to their son and daughter-in-law:
| Date of death | Estimated inheritance tax liability (IHT) |
| Pre 5/4/26 (current reliefs) | £nil |
| Post 5/4/26 (APR/BPR restricted to £1m x 2) | £430,000 |
| Consider: | |
| Post 5/4/26 (if APR/BPR restricted to £3m x 2) | £nil |
The family farm does not generate sufficient profits to:
- Pay the £430,000 IHT in instalments over 10 years.
- Repay a 20-year term loan taken out to fund the £775,000 IHT.
Annual payments of around £40,000 would be needed for either of the above options and a term loan may not be an option.
Land would have to be sold further impacting on the viability of the farm.
Family farm four
Business structure: Partnership and limited company.
Family involved: Mother in her seventies. Two middle-aged sons.
Brief summary of business:
- Dairy, sheep and arable.
- 180 cow dairy herd.
- 300 ewes.
- Trade in feeding sheep.
- Some arable cropping used on farm.
Profitability: Average £22,000 p.a. over the past five years to split between three partners.
Assets:
- c. 325 acres of land owned by mother (widow and inherited from her husband).
- Farm buildings, farmhouse and one cottages.
- Livestock and machinery less debt.
Commentary on inheritance tax position:
If mother passes away and leaves all of her estate with an estimated value of £4.7m to her sons:
| Date of death | Estimated inheritance tax liability (IHT) |
| Pre 5/4/26 (current reliefs) | £nil |
| Post 5/4/26 (APR/BPR restricted to £1m, husband’s £1m not transferable on death) | £605,000 |
| Consider: | |
| Post 5/4/26 (if APR/BPR restricted to £3m) | £205,000 |
| Post 5/4/26 (APR/BPR restricted to £4m) | £5,000 |
| Post 5/4/26 (APR/BPR restricted to £5m) | nil |
The family farm does not generate sufficient profits to:
- Pay the £605,000 IHT in instalments over 10 years.
- Repay a 20-year term loan taken out to fund the £605,000 IHT.
Annual payments of circa £60,000 would be needed for either of the above options and a term loan may not be an option.
Land would have to be sold and the farm may no longer be viable. There are significant fixed costs associated with maintaining the infrastructure to milk a smaller dairy herd. A reduction in stocking following a sale of land reduces contribution towards fixed cost reducing the currently weak profitability further.
Farm not affected by IHT
The following is an example of a farm that would not be affected by the government’s IHT reforms.
Family farm five
Business structure: Partnership
Family involved: Husband and wife in their late seventies. Two adult children with no obvious succession.
Brief summary of business:
- Beef and sheep
- 80 cattle
- 40 ewes
Profitability: Average £35,000 p.a. over the past five years to split between two partners.
Assets:
- c. 160 acres of land owned by husband and wife.
- Farm buildings, farmhouse.
- Livestock, machinery and some cash.
Commentary on inheritance tax position:
If husband passes away and leaves his estimated £1.25m (half share) of his estate to children, and wife does the same with her half share, there should be no inheritance tax due.
