What is IHT?
Inheritance Tax (‘IHT’) is a tax on a person’s estate when they die. An estate worth more than the available allowances is subject to IHT at 40%.
What changes to IHT were announced in the Autumn budget?
The current IHT allowances (being the nil rate band (‘NRB’) allowance of £325,000 and the Residential Nil Rate Band (‘RNRB’) of £175,000) have been frozen until 2030.
From April 2026, the Business Property Relief (‘BPR’) and Agricultural Property Relief (‘APR’) rules will change. 100% IHT relief will be available on the combined value of BPR and APR assets up to £1m. APR and BPR assets in excess of this threshold will be taxed at 20% IHT.
Pensions will be included for IHT purposes from April 2027.
AIM shares will be taxed at 20% IHT from April 2026.
How will these changes to IHT impact farmers and landowners?
These changes protect modest farms but will leave larger farms exposed to an IHT bill.
It is possible to pay any IHT due in yearly instalments over a 10-year period, which will be important following this change to the rules. However, where a farm is reliant on its agricultural assets with limited liquidity, a break-up of the farm to fund the IHT bill would be the end of farming for that family.
Although the RNRB allowance gives an additional £175,000 (£350,000 on the death of a second spouse) where the residential property passes to direct descendants, for a net estate worth more than £2m (ignoring APR and BPR) the RNRB is reduced by £1 for every £2 over this threshold. For a couple, on the second death, if the net estate is over £2.7m the RNRB is lost completely. When pension assets are added to the estate in April 2027, few farmers will qualify for the RNRB.
How can farms and landowners protect their assets?
To help prepare their families for the change ahead and mitigate the tax liability they may now face, landowners are urged to seek estate planning advice to explore their options before these changes are implemented. Asset transfer, the use of trusts and companies should all be considered. Each family is different and every solution needs to be carefully balanced and its implications understood.