How one farming family is navigating changes to the agricultural sector

Following Chancellor Rachel Reeves’ Autumn Budget in October 2024, the UK’s agricultural sector is facing new challenges resulting from revisions to Inheritance Tax (IHT) and Capital Gains Tax (CGT). The changes will impact the majority of farming families who, to date, have often been advised to retain assets until death, with little risk to the next generation of farmers.

I am a corporate solicitor who grew up on a family farm. We had sheep, a large egg farm and grew turf, which is slightly more unusual. The farm is traditional, in the sense that my grandparents still run the farm and work on it daily, and my father and aunt also work full time on the farm. As I think is typical with a lot of farming families, all the farm assets were originally in my grandparents’ names, but we have now moved these into a private limited company, where they hold the majority of the shares.

Within 24 hours of the Autumn Budget, I was called into an “emergency planning” meeting with the family. We quickly established that, like a lot of other farming families, we needed to take some time to see how advisers were responding to these changes and to consider the advice we should be seeking. We were also hoping that the changes might be reversed or dampened down and we wanted to know if this was a likely prospect before incurring costs.

Many of us will have seen the farming community’s protests against the changes, which have been ongoing since the Budget, based on genuine fears for livelihoods and food security. My family and I were concerned that these changes would capture nearly all genuine farming families and we thought the government might rethink their approach, given the threat to the UK farming industry, and increased thresholds that had been implemented.

We had hoped a transitional period would be implemented so that people in their 70s and 80s, who would have very little time to put the appropriate estate planning in place, would not be in the position of risking the livelihoods of the next generation of farmers due to the IHT burden that will be placed on them/the estate as a result of these changes.

We are now six months on and have heard the chancellor’s spring statement. It looks unlikely that the government is going to make any material changes to their October announcements and so we are focussing on what we can do with the new succession planning landscape that farming families are working within.

Under previous rules, Agricultural Property Relief (APR) and Business Property Relief (BPR) could, if properly structured, would eliminate IHT on farming businesses. However, from April 2026, the first £1 million of combined agricultural and business assets will attract 100% relief, with the balance qualifying for only 50%. For many farms, it is realistic to assume that when including the farmhouse, it is likely that the value of a farm estate will significantly exceed £1 million, which effectively doubles the tax liability if the entire estate passes on a second death.

Another key measure is the rise in CGT for farmland and businesses. CGT rates have moved from 10% to 18% for basic-rate taxpayers and 20% to 24% for higher-rate taxpayers on relevant disposals since 30 October 2024. The Autumn Budget also announced a multistage increase in Business Asset Disposal Relief, currently set at 10%, to 14% by April 2025 and to 18% by April 2026.

Consequently, farmers who have planned sales or restructures to support succession or retirement may find themselves liable for a higher tax bill than previously anticipated, albeit there are options to Holdover (defer) gains on a restructuring. These changes will require a thorough review of any sale or succession planning arrangements and, in some cases, reconsideration of the timing of such transactions.

My family has undertaken an immediate review of wills and the current company structure we have in place. We are now considering the following options going forward:

1. Splitting ownership between spouses and ensuring that more senior members of the family hold portions of farmland to optimise use of personal IHT allowances and relief thresholds (although this needs to be carefully balanced with the fact that my grandparents want to maintain majority control)
2. Targeted gifting of some assets during lifetimes
3. Utilising the annual tax-free gifting allowance as much as possible
4. Investigating whether any gifts can be made from surplus income (although this is proving to be a very complex area of law)
5. If the farming assets are held within a private limited company (which they are in my family’s case), we are considering capping the value of my grandparents’ shares (another option would be changing the legal structure of ownership for the farmhouse to ensure that this sits outside of the farming estate)
6. Whether we could obtain a form of life insurance which could offset any unforeseen inheritance charge.

It is clear that a great deal of planning will need to be undertaken by farming families, who are inherently asset-rich, and usually cash-poor. Many families will have to look at selling assets (likely land) to deal with the increase in IHT and CGT if they don’t undertake careful planning. The government has confirmed that the (interest-free) instalment option remains available to ease the burden, but there is no guarantee this will avoid the sale of farmland in many cases.

It goes without saying that this, now crucial, succession planning also comes at a material cost to farms, as this is something that farming families will need to fund, likely when they have not been anticipating this. Although the chancellor has insisted these reforms will be ‘simpler and fairer’, I have to admit that it is hard for us as a family to see a way forward where these changes won’t undermine crucial agricultural operations, UK food security and longer-term investment.

Farmers will remain vigilant as further technical details emerge. It would seem wise to consider instructing the necessary legal and tax advisors to advise on the new rules, to evaluate ownership models and to consider appropriate succession planning before any of the changes come into force.