The recent farmers inheritance tax changes mark a significant development in the financial planning landscape for agricultural families. These reforms aim to modernise the tax framework, balancing the preservation of family farms with the government’s broader objectives.

The adjustments have introduced both challenges and opportunities for farmers. Understanding these changes is critical for ensuring that farming estates are passed down efficiently, minimising tax liabilities while safeguarding the long-term sustainability of agricultural businesses. This overview explores the key aspects of the reforms and their potential impact on the farming community.

What is inheritance tax?

Inheritance tax is levied at 40% on the value of a deceased person’s property, possessions, and money exceeding the £325,000 threshold.

The tax applies only to the portion of the estate that surpasses this limit. For instance, on an estate valued at £335,000, inheritance tax would be due on the £10,000 above the threshold.

The Chancellor has announced that this threshold will remain unchanged until 2030.

Inheritance tax must be settled within six months of the person’s death; otherwise, interest is applied. Currently, the tax generates approximately £7 billion annually for the government.

What are the farmers inheritance tax changes?

In November 2024, it was announced that inherited agricultural assets valued above £1 million will become subject to inheritance tax for the first time starting in April 2026.

Currently, small family farms—including agricultural land used for crops or livestock, along with associated buildings, cottages, and homes—are typically passed down without incurring inheritance tax. Under the new rules, the first £325,000 above the £1 million threshold will remain tax-free, effectively raising the untaxed total to £1.325 million.

The tax on the portion exceeding this amount will be charged at 20%, half the standard inheritance tax rate. For married farmers, existing exemptions will still apply, allowing assets to be transferred to a spouse or civil partner tax-free or leaving a primary residence to children or grandchildren. This could increase the total untaxed amount for a farming couple to £3 million.

The government asserts that these changes will impact only the wealthiest 500 farms annually. However, the National Farmers Union (NFU) and the Country Land and Business Association (CLA) estimate that as many as 70,000 farms could ultimately be affected. Many farmers have expressed feelings of betrayal over the reforms, with protests erupting in response to the changes.

What can be done following the farmers inheritance tax changes?

Farmers can take several steps to mitigate the impact of the new inheritance tax changes and plan effectively for the future:

Seek professional advice

• Engage with financial advisors, estate planners, or tax specialists who understand agricultural inheritance tax. They can help create a strategy tailored to the farm’s needs.

Review estate plans

• Farmers should review their existing wills and estate plans to ensure they align with the new regulations. This includes identifying assets that qualify for agricultural or business property relief.

Utilise reliefs and inheritance tax exemptions

• Agricultural Property Relief (APR) and Business Property Relief (BPR) can reduce or eliminate the need to pay inheritance tax on qualifying assets. Ensuring assets meet the eligibility criteria is crucial.

Transfer assets early

• Consider gifting assets to the next generation during the farmer’s lifetime. If the donor survives for seven years after the gift, it may fall outside the inheritance tax calculation.

Consider succession planning

• Proactively plan for the future of the farm by involving family members in the business, defining roles, and deciding on the transfer of ownership or management.

Diversifying agricultural income

By diversifying farm income and considering alternative investments, farmers can reduce reliance on taxable agricultural assets. In the UK, there are various ways to make income from land, depending on factors such as the location of your land, zoning regulations, as well as your personal resources and objectives. Here are some combined agricultural and business concepts for land:

Habitat banking:  Habitat banking can offer land owners an opportunity to generate passive income by participating in conservation efforts and providing ecosystem services on their land. Land owners can generate biodiversity offset credits by enhancing habitats on their land. These credits can be sold to developers or other entities required to achieve biodiversity net gain targets.

Renewable energy projects: Land can also serve as a site for renewable energy ventures like wind farms, solar energy farms, or biomass facilities. One of the most common ways for landowners to profit from renewable energy projects is by leasing their land to developers.

Developers compensate landowners for permission to install and operate renewable energy infrastructure on their land. Lease payments are typically arranged as annual rent or one-time payments, offering a passive income throughout the lease term, which can range from 20 to over 40 years.

How can Collington Winter assist?

At Collington Winter, we have a team of ecologists that can assist with alternative farming income on your land in order to mitigate for the effects of the recent farmers inheritance tax changes.

Our ecologists have experience supporting farmers on both large and small areas of land. We can also complete initial assessments to help our clients to understand any potential implications or costings of projects from the outset.

Each of our projects are created with a high level of professionalism, upholding the interests of wildlife and the environment. The team are well served to work nationwide, with current offices across the country. Over the years, we have built strong relationships with key stakeholders across the UK.

If you are thinking about how to make passive income from land, please feel free to contact us using the details provided below.