17th January 2025

The Budget and What Next for Farming Families? – Part 1

The thunderbolt changes to Inheritance Tax for farmers announced in the Budget go live at the end of March 2026, if of course one takes the view that the government will not choose to backtrack in light of the reaction from farmers. 

But the very fact that the current system is in place until then does give a window of opportunity. 

Regardless of how many farming estates will be affected (the Government and Country Landowners Association predict differing numbers), it is the case that agricultural property assets in excess of £1 million will lose their favoured 100% relief status after the material date for death which occurs after March 2026.

The first £1 million worth of assets will be 100% relieved; thereafter there will be a 50% valuation discount available. It is quite easy for the relief to be lost, and so a first port of call for any farming family will be to ensure that those in the older generation owning land and other farming assets do indeed each use their allowance and then it is not lost. An example of how it can be lost is for a farmer to leave their farming assets as part of their residuary estate passing to a spouse who is not going to be assessed for Inheritance Tax. On that spouse’s death, their estate will have only the one allowance of £1million available, i.e. this relief will not be transferable.

That may, in some cases, mean changes to Wills to ensure that that outcome can be avoided, but of course those changes to Wills will need to be made as close as possible to the end of March 2026 and not beforehand.

But what else? Once the Inheritance Tax bill has been quantified, it is worthwhile looking at whether life assurance is realistic to pay a sum of money, written in Trust itself, so that the next generation receiving the farming assets and now receiving an Inheritance Tax bill have at least a degree of funding to pay all or a material part of that Inheritance Tax bill. For younger farmers, it may be surprisingly cheap, but the flip side does mean that for older members of farming families, insurance may be prohibitively expensive, if not impossible.

It is important to realise that in most cases, the additional Inheritance Tax arising will be on land type assets and so that Inheritance Tax bill will be payable in instalments should the farming family wish to do so. That spreading of the Inheritance Tax bill may make it more affordable; in the event of a divorced farmer dying with say £2 million worth of agricultural assets, it may make the difference between keeping the farm as a viable unit and having to sell parts to pay the Inheritance Tax bill if it must be funded in one block.

That may mean if the family choose the instalment option and pay £20,000 per year over a 10-year period, rather than having to find £200,000 immediately by a sale of land, the farm is no longer economically viable.

It is always useful to be aware, however, when it comes to instalment option, of the rate of interest on unpaid tax which is currently running at 7.75%, which is relatively steep. It is also important to realise that that a £20,000 Inheritance Tax bill may have to be paid for out of farming profits and that the payment of the Inheritance Tax bill gathers no relief when it comes to Income Tax on farming profits. Put simply, the profits may not be there to pay even the instalment option tax bill.

But a consideration as to whether the likely Inheritance Tax bill could be paid out of income is always helpful as at least it forces a consideration of the topic well in advance of it being encountered.

This is very much the sort of area where the farmer, their Accountant and their Legal Advisor will need to have a three-way conversation. I would suggest that this conversation should take place in the early part of 2025 whilst there is still time to carry out planning under ‘the old regime’ before we find ourselves in the new regime, with far less scope for any proactive planning at that point in time.

For further information please contact Edward Walter of 01892 502 320 or email him at ewalter@bussmurton.co.uk

Edward Walter

Edward Walter
Partner