Succession Planning For Agricultural Estates
Ensuring Continuity and Legacy Through Strategic Farm and Land Transition
Succession planning for farming businesses has never been more critical following the UK Government’s October 2024 Budget. With the announcement of a cap on Agricultural and Business Property Relief, farming families must now rethink how to preserve their estates and legacy for the next generation. By taking proactive steps—reviewing ownership structures, leveraging tax reliefs, and involving professionals—families can help to safeguard both their legacy and the land they cherish.
What is agricultural and business property relief?
Agricultural Property Relief (APR) and Business Property Relief (BPR) are key tools in mitigating Inheritance Tax (IHT). These reliefs allow qualifying agricultural and business assets to be passed on without being included in IHT calculations—effectively making them tax-free on death, if certain conditions are met.
Historically, many agricultural estates qualified for 100% relief, significantly reducing the financial burden on heirs and helping to keep farms in the family.
What is changing?
From 6th April 2026, the UK government will implement significant changes to APR and BPR. The reform introduces a £1million cap on combined APR and BPR, with assets above this threshold subject to a 20% IHT rate.
This shift will affect farming families with substantial land or business holdings, potentially forcing the sale of assets to cover tax liabilities. Advance planning is now more important than ever.
What to consider when carrying out succession planning
You must consider the options available to deal with agricultural and business property as part of the succession planning process.
A robust succession plan should start with a clear understanding of your estate’s structure and value. Once the groundwork is in place, you should consider strategic options.
Consider business structures
As IHT rules tighten, now is the time to take a closer look at the structure of your farming business. Operating as a sole trader might offer simplicity, but it could leave your estate more vulnerable to IHT.
Transitioning a family farming business to a partnership or limited company can enhance tax efficiency, succession planning, and legal clarity. A partnership allows for flexible income distribution, smoother generational handovers, and can secure both APR and BPR if assets like land are included within the partnership.
A limited company offers limited liability and corporate tax advantages, with shares enabling structured succession and potential BPR on trading business assets, though APR generally doesn’t apply to land held by the company.
Each structure brings trade-offs in terms of tax treatment, administrative burden, and eligibility for inheritance reliefs, so a tailored strategy—possibly combining both structures—is often most effective.
Lifetime gifts and taper relief (the 7-year rule)
Gifting ownership of assets during your lifetime is an effective way of reducing your exposure to IHT. If you survive for at least seven years, the gifted asset will no longer be considered forming part of your estate for IHT purposes. You should, however, avoid gifts with reservations. If you continue to benefit from the gifted asset—by retaining income or control—it may still be taxed as part of your estate.
Transferring ownership of assets
If you own assets in your sole name, consider transferring a share in the asset to your spouse. This approach will enable each owner to use their individual £1 million APA/BPR relief cap.
You might also consider transferring assets to the next generation-or even their spouses. This further dilutes your estate, but care should be taken about potential future separation or divorce. You might want to combine any asset split with a post-nuptial agreement.
Life Insurance
You might consider taking out life insurance written in trust that is paid out with your estate and designed to cover all or part of the IHT your estate will face or any IHT payable as a result of a lifetime gift made within seven years of death. It can provide liquidity to your heirs without forcing the sale of assets.
Don’t go it alone – seek professional advice
Succession planning, particularly under the new IHT rules, is complex. There’s no one-size-fits-all solution, and DIY approaches may do more harm than good.
Engaging legal and financial professionals is critical. They can tailor strategies to suit your specific family and business structure, ensuring your assets are protected and your wishes are fulfilled.
For more information, please contact:
Tracy Neal, Partner & Head of Department