Capital Gains Tax: The Overlooked Cost of Agricultural Succession Planning

As trusted advisors to many farming families, we’ve spent years assisting them in passing down wealth to the next generation to continue the family’s legacy. Since the Autumn Budget, many farming families and landed estates are turning to gifting to avoid Inheritance Tax (IHT), no thanks to several high-profile news outlets, but this gifting could inadvertently land their children with a large Capital Gains Tax (CGT) bill.

Capital Gains Tax (CGT) basics

Let’s start with some background: the Chancellor’s Autumn Budget raised CGT rates with immediate effect, with the basic rate jumping from 10% to 18%, and the higher rate from 20% to 24% for disposals, including agricultural land.

Farmers hoping to rely on Business Asset Disposal Relief (BADR) to soften the blow were given more bad news; rates are climbing from 10% to 14% and will eventually hit 18% by 6 April 2026. This is subject to a lifetime limit of £1 million.

Historically, farmers would “hold over” CGT on gifted agricultural land qualifying for Agricultural Property Relief (APR), which often provided 100% relief from Inheritance Tax (IHT). This deferred the tax liability to the recipient’s base cost, kicking the can down the road, so to speak, until the recipient realised the gain by ‘disposing’ of the asset. But what is a disposal? It could be a gift, a sale, or even a transfer into a trust.

Families hoping to, or indeed those who have already, gifted their farms in a bid to avoid additional tax liabilities may be left disappointed with the result.

The gifting trap

Let’s say you gift your £5 million farm to your eldest son. Under the previous rules, you’d hold over the gain, and he’d inherit your base cost—say, £500,000, as you inherited it from your own parents in the 1990s. No CGT for you, and he’d only pay when he sells, potentially decades later.

Fast forward to 2026, and he decides to sell. At the new 24% higher rate, he’d face CGT on £4.5 million (£5m minus £500k), landing a potential tax bill of over £1 million. Even with the use of BADR, it’s still a sizable tax liability. Compare that to the pre-Budget 20% rate (£900,000), or £800,000 with the use of BADR, that’s at least an extra £150,000 in tax.

Worse still, if the land’s value keeps rising (as agricultural land often does), that tax liability balloons further. Gifting now locks in a low base cost for your children, amplifying their CGT exposure when they eventually dispose of it.

APR headache

As we all know, the Budget didn’t stop at CGT. From 6 April 2026, APR and Business Property Relief for IHT are capped at a combined £1 million at 100% relief, with anything above taxed at 20%. Previously, qualifying agricultural land enjoyed unlimited 100% relief, making gifting unnecessary for IHT planning. Now, if your farm’s worth more than £1 million, the excess loses full APR protection.

We’ve seen lots of news outlets asking, “What’s the big deal? Just gift your land to avoid the IHT problem.” We say, gift it today and your children might dodge IHT on your death, but they’ll still face CGT on the full gain when they sell or gift it without the use of holdover relief.

Double tax! 

Can’t you just gift the land but keep using it? Gifting with a reservation of benefit (GROB), where you retain rights like receiving an income or living in the farmhouse, might dodge an immediate CGT charge, but it’s a trap. Under IHT rules, if you die while still benefiting, the land stays in your estate, negating the gift for IHT purposes. Post 2026, with APR capped at £1 million, anything over that faces 20% IHT. Plus, your children inherit your low base cost, teeing up a CGT nightmare when they sell at 24%.

Our take

Gifting agricultural land used to be a cornerstone of succession planning, but the Autumn Budget has cast a cloud over this strategy. Higher CGT rates, a shrinking APR safety net, and conflicting information in the media means that making knee-jerk decisions could risk your family’s future finances.

Instead of making hasty decisions, pause. Review your estate with an expert and meticulously consider every available option.