The UK Budget 2024 has introduced significant reforms to Agricultural Property Relief (APR) within the Inheritance Tax (IHT) framework, creating major implications for British farmers. APR has long been a vital tool for enabling family farms to pass to the next generation with reduced tax burdens. However, the upcoming changes mean that larger farming estates could face higher IHT liabilities, potentially threatening their financial sustainability.
These reforms have already sparked concern across the farming community, with recent protests at Westminster drawing attention to the profound challenges they could bring for agricultural businesses and family legacies. For farmers, understanding the new rules and planning accordingly will be critical to adapting successfully to this shifting tax landscape.
What’s Changing With APR?
Previously, APR allowed farmers to pass on agricultural property without incurring inheritance tax, facilitating the transfer of farms across generations. Under the new rules however, from April 2026, full 100% relief will be limited to the first £1 million of combined agricultural and business property. Assets exceeding this threshold will be subject to a 20% inheritance tax rate, a reduction from the standard 40% inheritance tax rate.
Undoubtedly, these changes introduce substantial IHT liabilities for larger estates, posing challenges for succession planning.
Key Considerations for Farmers
1. Assess the Value of Your Estate
Calculate the value of your agricultural property and other assets to understand your potential tax exposure. Estates exceeding the £1 million APR cap could face 20% IHT on the portion above the threshold, potentially creating significant financial burdens for heirs.
2. Plan for Liquidity
To meet IHT obligations, families may need to sell land or other assets. Ensuring liquidity through savings, investments, or life insurance can help cover tax bills without disrupting farming operations or threatening the farm’s future.
3. Reassess Your Succession Plans
Early planning is now more important than ever. Options such as gifting assets, establishing trusts, or restructuring ownership can help reduce tax liabilities while ensuring a smooth transition for the next generation.
4. Evaluate Diversified Assets
Farms with non-agricultural ventures, such as holiday lets or renewable energy projects, may find these assets do not qualify for APR. Reviewing how such assets are held and taxed can help mitigate potential liabilities and clarify their role in your succession strategy.
Looking Ahead
The APR changes introduced in the UK Budget 2024 underline the importance of proactive inheritance planning. By evaluating your estate, ensuring liquidity, and preparing succession plans, farmers can adapt to these changes and protect their legacies. Seeking support from a financial adviser can be invaluable in navigating these complex changes. A professional can help tailor strategies to your unique circumstances, minimise tax liabilities, and secure a stronger financial future for your family and farm.
About the Author - Jeff Simpson is a Chartered Financial Planner at Hymans Robertson Personal Wealth. Find out more by visiting their website here The contents of this article is for general information purposes only and should not be regarded as financial advice. It should not be considered a substitute for regulated advice on specific circumstances and objectives. Watch an on-demand webinar where Jeff tax expert Anthony Whatling from Alvarez & Marsal, discuss the various outcomes of the Autumn Budget and their implications for family business owners.
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