On a management course 30 years ago, the coach was trying to ascertain how to set goals and asking that if money was no object and you were unconstrained, how would you think and what would you do.
His question was: ‘If you won a million pounds, what would you do’? A farmer responded: “I’d carry on working until it had all gone”.
That’s farming. It’s a lifestyle, a way of living and a way of putting good nutrients into families’ stomachs. A farm represents decades, even centuries, of family toil. Early mornings, calloused hands, and late nights aren’t clichés here; they’re a way of life. But for many families, the taxman may be about to sow some very unwelcome seeds.
Two critical tax reliefs, Agricultural Property Relief (APR) and Business Property Relief (BPR), have long stood as the backbone of succession planning for farmers and small business owners. These reliefs allow families to pass down their farm or business without the heavy burden of a 40 per cent inheritance tax (IHT) bill. Without them, a farm could be sold, and years of heritage would vanish overnight - all for the sake of paying HMRC.
At its core, APR allows farmers to pass agricultural land and buildings to the next generation free of inheritance tax, provided the land qualifies. Business Property Relief does something similar for small businesses, shielding ownership stakes and assets from tax.
For most farmers, cash flow is tight, and the farm is the wealth. It’s not parked in a bank account or spread across investment portfolios. If Agricultural Property Relief or Business Property Relief were restricted, the next generation could be forced to sell land or business assets just to foot the inheritance tax bill, breaking up the farm further and making the farm even more unsustainable.
This isn’t just a problem for farmers. Small businesses that rely on Business Property Relief could see their legacies crumble. A village mechanic with a workshop, a family-owned B&B, or a local bakery - these are businesses which keep communities alive. The threat of losing Business Property Relief puts them at the mercy of tax liabilities they simply can’t afford.
The government says it doesn’t affect that many people. Make that make sense. If it doesn’t affect many people, what’s the point in doing it then? They say it’s to stop wealthy people buying farms to get around inheritance tax. Those people are buying the farm for the wrong reason and clearly not in alignment with the reason agricultural relief was brought in in 1984. Deal with those people directly then.
For those who live on the land, or own a family business, this is not the time to bury your head in the sand. Like any good harvest, preparation is everything.
Speak to a qualified adviser who understands both Agricultural Property Relief and Business Property Relief inside out. Assess whether your land or business assets currently qualify for relief. If, and when, changes come, you need to know how exposed you’ll be.
Diversify thoughtfully. Many farms diversify into non-agricultural income, like weddings or tourism. While this is essential for survival, make sure these ventures don’t inadvertently disqualify your assets from Agricultural Property Relief or Business Property Relief.
Advice here is critical. Consider the cost of the tax and insure against it. You simply insure yourself for the amount of tax and that benefit is paid into trust for your beneficiaries. As it is in trust it won’t go into your estate and be taxed and also go through lengthy probate. The beneficiaries would receive the capital direct and pay the Revenue, leaving you with the flexibility now of not restructuring estates.
Consider gifting early. Lifetime transfers of assets more than seven years before death fall outside the inheritance tax net. However, farmers must balance this with maintaining control of the land and business.
Use trusts strategically. Transferring assets into trusts ahead of 2026 could help, though careful planning is required to manage potential Capital Gains Tax (CGT) and long-term trust charges.
Consider partnership agreements. Farms held in partnerships can achieve 100 per cent Business Property Relief (subject to the cap). Ensure assets are structured correctly to maximise relief.
- Peter McGahan is chief executive of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you have a question from this column, call Darren McKeever on 028 6863 2692 or email info@wwfp.net
