The Autumn Budget 2024 left farmers across the UK feeling disappointed and uncertain about their future as it was announced that Agricultural Property Relief is going to be significantly reduced.
The Clayton & Brewill team explains what these changes mean and shares some tips on how farmers can protect their futures.
Agricultural property relief (APR)
APR is a relief from Inheritance Tax (IHT) which was granted by the Inheritance Tax Act 1984. This relief is available on gifts of agricultural property, such as pasture used to grow crops or rear animals, and buildings and farmhouses used in conjunction with the land. The purpose of APR is to reduce the amount of tax that farmers and landowners pay when farmland is passed to the next generation, helping farms to stay in the family where possible.
It was announced by Chancellor Rachel Reeves that, from 6 April 2026, 100% relief will be available to assets under £1 million and assets over £1 million will get 50% relief, with an effective rate of IHT at 20%.
What does this change mean for farmers?
Many farming families believe that the reduction of APR will make it harder for the next generation to continue working on their family’s farm and that it could lead to a rise in food prices for the consumer, as farmers struggle to absorb the additional costs.
There have been estimates surrounding the number of farms that could be affected; encouragingly, the actual number of farms that could be affected by the change is expected to be less than originally thought, as the tax only applies to farms once they are inherited. Though 70,000 farms in the UK are worth over £1m, according to HMRC there were only 462 inherited farms valued this high in 2021-2022, and today’s figures are estimated to be similar.
It is important to also note that the 20% IHT is on any value over £1m rather than the total value of the farm.
How can farmers protect their futures?
While this is understandably a stressful time for farmers, there are several ways that they can make the most of their succession planning and ensure only the necessary amount of IHT is paid, if any at all.
If a farmer is married, their spouse will also be able to pass on £1m worth of property tax-free and there is a further £500,000 of relief for each partner if property is involved. There is also a £175,000 tax-free allowance on a main residence when it’s being passed on to children or grandchildren. This means a farm worth over £3m may pay zero IHT if all these factors come into play. While this is not the case for every farm, it would be prudent to assess your situation and ensure if you are a married couple or in a civil partnership that you have equalised your estates.
Prioritising succession planning at an earlier stage is vital, as transferring assets to the next generation more than seven years before death instead of via a will can help to maximise tax efficiency. The Budget did not make any changes to rules surrounding lifetime gifts, so if an individual gives an asset away and they survive by at least seven years then the value of this no longer forms part of their estate when paying IHT.
How we can help
At Clayton & Brewill, we specialise in supporting both rural and family businesses and so we understand the unique dynamics that come into force in a situation like this and how concerned farmers may be about the recent announcements. If you have any questions about the changes announced in the Autumn Budget 2024 or would like advice on how to begin your succession planning, please do not hesitate to get in touch with a member of our team today.
