The period since the Labour Government's first Budget of October 2024 has been fraught for many farmers and rural businesses. That brought the announcement that Agricultural (APR) and Business Relief (BPR) for IHT, available for many years at 100% with no upper limit, would be restricted to £1m of qualifying assets per person from April 2026. Qualifying assets above that limit would only qualify for 50% relief, meaning that a great number of farms across Scotland faced the prospect of exposure to IHT. For a sector facing a number of challenges, the unexpected prospect of death duties at an effective rate of 20% prompted widespread concern.
The intervening period has seen extensive critical commentary and protests, including regular queues of tractors on Whitehall. November 2025's Budget brought the sensible news that the allowance would be transferable between spouses, meaning that a surviving spouse could pass on qualifying assets worth £2m with 100% relief. But otherwise, the 2025 Budget was silent – and so with April 2026 approaching, farmers and their professional advisers have been busy developing and implementing a range of strategies to try to mitigate this burden.
23 December 2025 brought unexpected good cheer, with the announcement that the upper limit for 100% relief is to be increased to £2.5m per person. This will allow married couples to pass on up to £5m in qualifying assets between them. Such couples might also have their standard Nil Rate Bands of £650,000 to further reduce their tax exposure.
This was very welcome news. For many, the availability of relief up to £5m for a couple will present the opportunity to ensure that there is no IHT burden when passing on the family farm. Even for those larger farms that might exceed these limits, the increased allowances mean a reduced tax exposure. It might, therefore, be tempting for farmers to exhale, and return to business as usual – as though the year-long spectre of a tax raid was just a bad dream.
This would be a mistake. If the shifting sands of the past year have had one positive, it has been that farmers have had a very clear motivation to properly review their affairs and consider their plans for the future, in a way that was often overdue. Amid the daily round and its challenges, the opportunities to properly consider the future can be limited. It is an old adage that 'there is no such thing as a retired farmer,' and certainly I have not come across many farmers who welcome discussions about succession plans and passing on to the next generation! The uncertainty of the past year – and its threat that it would become simply unfeasible to pass on the family farm on death – has thrown that into sharp relief, and prompted many farming families across the country to finally begin overdue conversations about succession to the farm. These discussions invariably raise a number of issues. Even if the immediate tax pressure is now lessened for the majority of mid-sized family farms, there can be an awful lot to consider.
A critical check of the case for Inheritance Tax relief is always sensible. Relief will only apply to 'qualifying assets' and should not be assumed as automatic. It is essential for farmers to take appropriate professional advice to ensure that a robust claim can be made for relief when it is needed. This is particularly important where farmers have diversified and might now engage in business activities that HMRC would consider to be investment, rather than trading. Updated valuations carry a cost but can be invaluable in identifying areas that might be vulnerable to a challenge from HMRC. For many whose capital values or business activities mean that they remain concerned about IHT or who are otherwise in a position to accelerate succession plans, lifetime gifting to the next generation or into trust will merit careful consideration. Developing and implementing strategies for tax-effective gifting will continue to be a valuable option for many, even if the urgency has been lessened by the increase in IHT limits.
While IHT concerns might be the immediate trigger for these discussions, tax planning should always take place while bearing in mind the broader succession objectives for the farming business, and the wider family. Farmers should ensure that they have tax efficient Wills prepared and regularly reviewed. For those who farm in partnership, the partnership agreement should be consistent with those Wills and should reflect the plan for succession to the partners' respective interests. The IHT changes have prompted many farmers to accelerate succession plans by introducing the next generation to the farming partnership and gifting capital in a tax efficient manner, and a flexible partnership agreement is the place to regulate the operation of the business as capital is transferred. Many farming businesses still operate with historic (or non-existent!) partnership agreements in a way that can jeopardise the availability of tax reliefs or threaten succession strategies. As succession strategies are developed and implemented, the partnership agreement should be reviewed to ensure that it meets the needs of the farming business. The treatment of any heritable property introduced to the partnership should also be a focus to protect against any claims from family members that might prejudice a wider succession plan.
Farming businesses are complex, and there is an awful lot to think about. The IHT burden threatened by the Government's reforms has been diluted, and that is to be welcomed. But the opportunity to take a renewed look at the plans for the future of the farm should still be seized. We are always delighted to work with farming clients and their professional advisers to ensure that they can have confidence in their succession plan.
This article was published in The Scottish Farmer - read the original article here.
