Farmers who are worried about the impact of changes to Agricultural Property Relief (APR) on Inheritance Tax (IHT) should take action now to protect their legacy for the next generation. The Government’s proposal to introduce a £1m cap on agricultural property relief effective from 6 April 2026 could significantly increase the tax burden on farmers.
Rob Goodley, a Partner at Blick Rothenberg, suggests that farmers should review their wills and consider making lifetime gifts to the next generation to minimize the impact of the proposed changes. Assets can still pass between spouses free of IHT, and onward gifts to children can be more tax efficient.
If an individual inherits a farm worth £11m, it could result in a £2m IHT liability, which may be difficult to pay, especially if there are minimal other assets. Rob advises that liabilities can be paid over a ten-year period, but this would incur late payment interest costs. Using dividends from the business to fund the liability could also result in higher tax burdens.
To address the tax funding issue, farmers can consider taking out life insurance policies to cover IHT costs. Making lifetime gifts to the next generation can also help reduce tax liabilities, as gifts made at least seven years before death are not subject to IHT.
However, the Government plans to introduce anti-forestalling rules for gifts made between 30 October 2024 and 5 April 2026, which could impact the tax treatment of gifts made before the proposed changes come into effect. It is important for farmers to seek expert advice before making any decisions to avoid unexpected tax consequences.
While the proposed changes are not set to become law until 6 April 2026, farmers should start planning now to ensure they are prepared for the potential impact on their estate. The final legislation may differ from the initial proposal, so farmers should stay informed and consult with tax experts to make informed decisions.
There has been significant backlash against the proposed changes, and it is possible that the Government may reconsider or withdraw the proposal in response to public pressure. Farmers should stay updated on any developments and be prepared to adapt their plans accordingly to protect their legacy for future generations.
