IHT Planning for Farmers

Agricultural Property Relief

Assets that qualify for Agricultural Property Relief (APR) can be passed to beneficiaries free of inheritance tax, either during a lifetime or upon death, with recent changes impacting the relief for high-value estates.

New limitations on Agricultural Property Relief (effective from 6 April 2026)

The 2024 Autumn Budget introduced changes to APR, affecting larger farming estates:

• £1 million relief cap: From 6 April 2026, the full 100% APR will apply only to the first £1 million of combined agricultural and business property.
• Reduced 20% Inheritance Tax: For values above this £1 million threshold, inheritance tax will apply at a reduced rate of 20%, rather than the standard 40%.
• Flexible payment options: The tax due on the excess can be paid in instalments over ten years interest-free, easing the financial burden on inheritors.

However, the rules surrounding this are very complicated especially with farms ran via a “farming contract” and advice should be taken to ensure your farming assets can be passed to your loved ones in the most tax efficient way possible.

Qualification examples

Some examples of when agricultural property relief should apply to your farming assets are detailed below:

The Farmhouse – For the farmhouse to qualify for agricultural property relief it should be the hub of the farm where all farming operations are carried out. It should also be character appropriate and occupied by the farmer.

Farm cottages – Farm cottages only qualify for agricultural property relief if lived in by farmworkers for the purpose of running the farming business. They also must be character appropriate. Many farmers that now run their farms via a “farming contract” have converted the cottages to long term rental property or short-term holiday lets. For inheritance tax purposes this would mean that these properties don’t qualify for agricultural property relief.

Agricultural land – Agricultural property relief should be available on land that that is used to grow crops or feed livestock. It is not an “all or nothing” requirement and so farmers should be aware that agricultural property may not be available on land that isn’t being used in the farming business.

Farm buildings – Derelict buildings that are no longer used in the farming business will not qualify for agricultural property relief. Each building needs to be assessed, and it will have to meet certain criteria to be classed as fully operational and eligible for agricultural property relief.

For farms that do not fully meet APR requirements, Business Property Relief (BPR) may still apply. An example would be where a farmer has set up a commercial quad biking venture on land that was previously used for farming.

Planning and Compliance

Timing and eligibility are critical. Property needs to be owned and actively used for a set period to qualify for APR. HMRC is increasingly challenging APR claims, making careful planning essential. At Elite Financial Accounting, we assist clients in developing tailored inheritance tax strategies, especially when farms operate under complex arrangements or include non-farming assets.