Interview with
Tom is a Chartered Financial Planner with expertise in Inheritance Tax planning and intergenerational wealth strategies. He enjoys building long-term relationships with clients and their families, guiding them through life’s key financial decisions.
For many farming families, the farm is not just an asset on a balance sheet. It’s home, history, and heritage. It represents years of early mornings, tough winters, and pride in building something that’s handed down from one generation to the next.
Parents often continue working the farm well into later life. Even when the children are ready to take over, mum and dad are usually still involved, advising, helping, and ensuring the land is cared for in the right way. For many, the farm also provides the income needed to support them in retirement.
That’s why changes to inheritance tax reliefs from April 2026 have become such an important topic of conversation across the farming community.
What’s changing?
From 6 April 2026, the amount of agricultural and business property eligible for 100% relief under APR and BPR will be capped.
When these changes were first announced, the government proposed a limit of £1 million per person at 100% relief. This prompted significant concern and campaigning across the farming community, as many smaller and medium-sized family farms would have exceeded that threshold simply due to rising land and property values.
In response, the government revised the policy before Christmas, increasing the threshold for full relief to £2.5 million per person.
From April 2026:
- 100% relief will apply to qualifying agricultural and business assets up to £2.5 million per person
- Above £2.5 million, relief will fall to 50% (effectively a 20% inheritance tax rate on the excess)
- The allowance is transferable between spouses and civil partners, meaning a couple can benefit from up to £5 million of full relief before the reduction applies
For many smaller and medium-sized family farms, this still provides significant protection. But for larger holdings, or farms where land, buildings, machinery and diversification projects have increased overall value, it introduces a new inheritance tax consideration that simply wasn’t there before.
“For the families I work with, the farm is their livelihood, their pension and their legacy all rolled into one,” explains Tom. “This change doesn’t mean farms can’t be passed on successfully, but it does mean the numbers matter more than they used to.”
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Why this matters to multi-generational farms
Many traditional farms share some common features:
- Parents are reluctant to give up control, even in later years.
- Retirement income is often drawn from the farm itself, not from pensions or savings.
- The holding needs to support both generations, parents and children, at the same time.
- Farmers have also faced a surge in the costs they face. A piece of modern equipment costs as much for a small farm as it does for a large one. Rising fuel, feed, and fertiliser prices mean margins are already tight.
A farm that previously qualified for full APR regardless of value may now exceed the £2.5m threshold purely due to land value increases.
And unlike other assets, you can’t easily “slice off” part of a farm to pay a tax bill without affecting how it operates.
“The concern is rarely about poor planning,” says Tom. “It’s about the fact that farm values don’t always reflect cash flow. A business can be asset-rich and income-tight at the same time.”
Wills and ownership structures matter more than ever
Even though APR and BPR still provide powerful relief, they are not automatic.
Qualification depends on:
- Ownership
- Occupation
- How the farm is structured
- Whether the holding remains viable
- How the farmhouse is treated
- How assets pass through the will
“The biggest danger we see is where wills haven’t been reviewed for many years,” explains Tom. “Not because families have done anything wrong, but because the tax environment has changed around them.”
April 2027: The pension change many farmers haven’t spotted
Another important change comes a year later. From April 2027, most defined contribution pensions will count as part of a person’s estate for inheritance tax.
Right now, pensions can often be passed on outside of IHT. After April 2027, their value will be added to the estate. For many farmers, this means that the personal nil-rate allowance (the £325,000 each person currently gets) could be used up entirely by the pension.
The knock-on effect is that more of the farm’s non-agricultural assets, such as cash, cottages, or diversification income, could become exposed to inheritance tax.
“This is the change that deserves far more attention than it’s getting,” Tom explains. “For some families, the pension rule change could create more inheritance tax exposure than the £2.5 million 100% relief threshold itself.”
What options do farmers have?
Every farm is unique, and the right solution depends on the family, the land, and the finances. Here are some of the strategies families and their advisers are starting to consider:
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1. Utilise gifting allowances and exemptions
Gifts of land or assets can be made during a person’s lifetime. If the owner survives seven years after the gift, it usually falls outside their estate and would not use up any of the allowance.
This could mean transferring agricultural assets to younger generations now reduces or eliminates any liability. Staggering gifts could also be used to gradually move the farm into the children’s names, potentially reducing the inheritance tax exposure, whilst still maintaining an element of control. The balance, of course, is ensuring parents still have enough to live on.
2. Trusts
Trusts may offer a way to keep the farm in the family while ensuring income for parents. HMRC is still consulting on how these might apply, but in principle, a trust can provide a structure where ownership passes down, but the farm remains under family management.
The interaction of the new limits with Trusts is complex, therefore appropriate professional advice should be taken.
3. Incorporating the farm
Some farmers may consider turning the farm into a limited company. Parents could hold preference shares (providing them with a fixed income), while children hold ordinary shares (giving them eventual control). This can be a way to separate ownership from day-to-day management.
4. Warm hand giving
This approach involves transferring the entire farm to the children during the parents’ lifetime, backed by life insurance to cover the risk if a parent dies within seven years. While it reduces the value of the estate on death, it does mean parents lose formal control, which can be emotionally and practically difficult.
5. Open family conversations
Whatever option is chosen, communication is key. These decisions affect everyone, parents, children, and sometimes grandchildren. Talking openly reduces the chance of disputes later and ensures everyone understands both the plan and the reasons behind it.
As Tom explains, “There isn’t a single solution that works for every farm. The right approach depends on the family dynamic as much as the financials. What matters is starting early, involving the next generation, and putting a plan in place that gives everyone clarity and security.”
The emotional challenge
Numbers and tax allowances aside, this is a deeply emotional issue. For many farmers, the land isn’t just an asset, it’s who they are. Passing it on early can feel like letting go of that identity.
But planning doesn’t have to mean losing control. Structures such as preference shares or trusts can allow parents to stay involved, guide the next generation, and still secure their own retirement income.
Practical steps to take now
Here are some clear actions farming families can start with today:
- Review your wills – Check how assets are owned between spouses to ensure both sets of reliefs and nil-rate bands can be used effectively.
- Agree a succession plan – Decide whether the farm will continue with the family or be sold at a future date.
- Look at lifetime gifting – Explore whether staged transfers are practical without affecting retirement security.
- Secure income for parents – Through shares, rental agreements, or other arrangements.
- Include the next generation – Bring children into discussions now to avoid surprises later.
- Seek professional advice – A solicitor, accountant, and financial adviser should work together to create the best plan for your circumstances.
These changes don’t mean farms can’t be passed on successfully. But they do mean that careful, early planning is more important than ever.
“The good news is that with the right planning and enough time, most families can put structures in place that protect both the farms and the people who rely on it.”
Get in touch
Every family farm is unique, and so is the best way to plan for its future. If you’d like to talk through how the 2026 and 2027 inheritance tax changes could affect your farm, and the steps you can take now to protect it, our financial planners are here to help.
To set up an initial appointment, please call 0800 915 0000, or use our contact form to arrange an appointment.
Disclaimer
The information within this article was correct at the time of publishing, but laws and tax rules are subject to change. Your circumstances and where you live in the UK may also have an impact on your tax treatment.
