Since 1984 farmers and agricultural land and business owners have been exempt from IHT, but this is set to change. From April 2026, the first £1 million of combined business and agricultural assets will continue to attract no inheritance tax at all, but for assets over £1 million, inheritance tax will apply.

Inheritance tax (IHT) is a tax paid on the estate of someone who has died. Normally, estates worth less than £325,000 are not taxed, with a further £175,000 of relief given if a home is left to children or grandchildren, giving a total of £500,000 tax free.

Farm Estates and IHT from April 2026

• Farmers can continue to claim the £325,000 allowance mentioned above, as well as the additional allowance for passing their homes to children or grandchildren. This means that, in practice, farming estates worth up to £1.5 million would not be taxed. In the case of a married couple or a farm owned by two people, the allowance doubles to £3 million. IHT would be due on any amount above this.
• Rather than the standard IHT rate of 40%, farm estates will be charged at 25%.
• Rather than IHT being payable on death, which would normally be the case, farmers will be able to pay their IHT liability interest free, over 10 years.
• If farms are gifted to family members at least seven years before death no IHT is payable. If the gifts are made between three and seven years before death, the tax rate charged falls on a sliding scale.

The Importance of Effective State Planning and a Will

It is thought that around 500 claims each year will be affected by the changes. This is based on a government analysis of claims for Agricultural Property Relief, from farms worth £1million or more (between April 2021 and March 2022), indicating that around 462 farms, at that time, fell into the claims category.

However, agricultural land values have risen sharply in recent years and it is therefore likely that more farms may exceed the £1 million threshold. The CLA (Country Land & Business Association) claims that as many as 70,000 farms could be affected.

Effective Estate Planning is Key!

Whatever the number of farms that might meet the threshold for paying IHT, some have pointed out that the numbers who end up paying the tax could be smaller as a result of effective estate planning.

With proper estate planning, it is possible to reduce or avoid inheritance tax

Just to reiterate; If farms are gifted to family members at least seven years before death no IHT is payable. If the gifts are made between three and seven years before death, the tax rate charged falls on a sliding scale.