Though this is still going through consultation, it is proposed from April 2026 these reliefs will be capped at 50% on anything over only £1million in value, representing a dramatic shift from the current 100% relief that has long protected family farms during succession.
This change couldn't come at a worse time for the farming sector. Although livestock is performing well at present, after two difficult harvest years alongside increases in national insurance contributions and minimum wage, many farm businesses are already facing significant financial pressure. One only has to look at the headlines of the recently published Scottish farm business income report to appreciate how worrying the situation is. The report found a sharp decline of 51% in farm incomes in 2023-24 to an estimated £35,500 after adjusting for inflation. The IHT proposals represent yet another blow to an industry vital to our national interests.
What's particularly concerning is the apparent lack of understanding about farming economics by government. Agricultural land may hold high capital value, but it typically generates comparatively low income returns. For example, a £5 million farm facing inheritance tax liabilities of around £800,000 might only generate annual profits of £30,000 – making tax payments of £80,000 per year (potentially spread over ten years) simply unsustainable without selling pockets of land.
This creates a vicious cycle: selling land to pay tax bills reduces the operational viability of farms, potentially forcing complete sales and dismantling generations of farming heritage. The original rationale for inheritance tax reliefs was precisely to prevent this economic harm from forced sales or the breakup of farms and businesses to finance tax payments.
However, there are actions landowners can take now to limit the impact upon their farms and estates:
- Review ownership structures. Many farmers understandably only focus on the day-to-day running of their businesses without knowing exactly if assets are held in personal names, partnerships, or trusts.
- Consider Lifetime Gifts. The seven-year taper relief will still apply in many circumstances and in certain cases can eliminate inheritance tax entirely. However, transfers made before 6 April 2026 will be subject to the new rules should the donor die on or after 6th April 2026 to prevent forestalling. Caution should also be given to reservation of benefit if a transfer is actioned but not acted upon, and the affordability of gifting assets now from one generation to the next.
- Explore insurance options which can be cost-effective for managing future liabilities.
- Consult experts promptly. With complex decisions ahead, professional advice from solicitors, accountants, and land agents is essential while there's still time to implement effective strategies.
There is some hope on the horizon. After months of pushing for a meeting, HM Treasury agreed to meet with a small collective of UK Agricultural Representatives, including the NFU, CLA and the Tenant Farmers. The representatives presented proposed amendments to the legislation, including a 'clawback' provision that could provide relief for many family farms. While this may not benefit all land and estate owners equally, it represents a potential path forward. SLE continue to lobby hard on behalf of their members on the Scottish specific implications presenting case studies on the impact to the Scottish Office and in briefings to backbench Labour MP’s who it is hoped have a chance of securing government concession. Given the possibility and hope that the Government might change the parameters, any significant reorganisation carried out now, before the legislation is finalised, might be ill-advised.
For now, the silver lining may be that these changes have encouraged the farming community to confront succession planning head on, highlighting the need to review business structures to ensure long term sustainability.
Although these changes are not yet law and taking significant action now might be ill-advised, it is vital to seek advice early and begin planning your property’s future, before next year’s deadline leaves fewer options on the table.
