From April 2026, farming families and landowners with qualifying property exceeding the new £1 million cap for 100% Agricultural Property Relief (APR) and Business Property Relief (BPR) will face a significant Inheritance Tax (IHT) liability.
While this is now a well-known reality, the challenge lies in how best to mitigate that exposure. Every farming family’s situation is unique, which makes blanket advice difficult. However, two broad strategies are emerging, each with its own costs, risks, and time-sensitive opportunities.
Option 1: Accept the IHT liability and plan to pay
Some families may choose to do nothing and prepare to pay the tax over time. HMRC allows IHT to be paid in instalments over 10 years without interest, which could be funded by:
- Future sales of non-core farm assets
- Bank borrowing
- Off-farm investments
- Whole-of-life insurance cover
This approach may suit some, but it depends heavily on the size of the liability and the availability of liquid assets. For many, it may not be a sustainable or credible long-term solution.
Option 2: Make lifetime gifts of assets
Gifting assets now can reduce the taxable estate, but it comes with its own complications:
- Capital Gains Tax (CGT) may be triggered on historic gains, especially for long-held family land.
- Relief is available via CGT hold-over, allowing the gain to be postponed – potentially indefinitely – when gifting qualifying land. However, this relief is only available in certain circumstances and may not apply to all recipients.
- Non-tax considerations also matter. Is the intended recipient ready to inherit? Are there concerns around divorce, family dynamics, or business readiness?
Trusts: A narrowing window of opportunity
Gifting assets into a trust rather than directly to an individual can offer flexibility and protection. But this route is also under pressure:
- Lifetime gifts to trusts trigger an immediate IHT charge.
- Until April 2026, there is no cap on the value of qualifying property that can benefit from APR/BPR when gifted to a trust.
- After April 2026, only £1 million per settlor will qualify. Any excess will face a 10% entry charge.
This change is particularly problematic for those planning to gift qualifying residential property with significant gains, as CGT hold-over relief is only available when gifting to a trust. In many cases, this strategy may only be viable before April 2026.
Other considerations
- Seven-year rule: All gifts are subject to a seven-year “at risk” period. If the donor dies within this time, the gift may still be taxed. Insurance can help manage this risk.
- No benefit rule: Donors must not continue to benefit from the gifted asset. This could mean reducing partnership drawings or profit shares, potentially a difficult adjustment.
- Bank security: Gifting assets under loan security requires lender consent, which may be conditional or refused. It could also trigger Stamp Duty Land Tax (SDLT).
Act now, plan wisely
With thoughtful advice, none of these challenges are insurmountable. But time is ticking. The window for efficient tax planning is closing fast, and some strategies will no longer be viable after April 2026.
If you or your clients are considering succession planning, restructuring, or gifting land, now is the time to act. Clarke Willmott’s agricultural property and tax teams are here to help you navigate the options and make informed decisions. Contact us online or call 0345 209 1000
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