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IHT rethink will be “game changer” for farm businesses

Robert Sullivan, Director at GSC Grays, believes rumoured changes to Inheritance Tax (IHT) for farm businesses will be a “game changer” and bring much needed relief to the industry.

Rachel Reeves, the Chancellor, sent shockwaves through the farming community by announcing in the last Budget that from April 2026, the agricultural property relief will be capped at £1 million. That meant any agricultural property valued above this threshold will no longer be fully exempt from inheritance tax, with only 50% of the value above the £1m cap qualifying for the relief.

However, reports now suggest there has been a major rethink following the anger and worry generated by the proposal with officials understood to be looking at the “minimum share rule” put forward by the Centre for the Analysis of Taxation (CenTax).

This would give full relief from IHT up to £5m per person (£10m for a married couple) where farmland or business assets form at least 60% of an estate. From £5m-£10m per person there would be 50% relief, but no relief after £10m.

CenTax claims this change could double the revenue expected from the original policy -from £500m to £1bn – while protecting small and medium farms.

Robert said: “If the suggestions are correct, then it is a game changer and a positive result for the farming sector in the UK as it would take the majority of family farms out of the Inheritance Tax issue on Day One.

“It will mean family farms are going to be in a position to structure the transition of assets based on their wishes rather than to avoid a significant IHT payment that would have greatly reduced the likelihood of the business actually continuing.

“The reports suggest farms valued up to £5m will receive 100 per cent relief from IHT, between £5-10m it would be 50 per cent relief and no relief above £10m and that to me is a fair position. For those farming businesses over £10m they should have the ability to put plans in place to manage their position accordingly.

“If you are looking at a figure of £5m then that is a 400-500 acre farm owned by a single person, so I would expect that most family farms would come under the £5-10m threshold.

“That would be a massive relief for most family farms especially where assets are already spread across a number of family members. Even if assets are mainly with one family member the impact on that business will be substantially less.”

For one of Robert’s clients the change would have a significant effect on their farm business and remove the need for costly insurance.

Robert explained: “I am working with a family farm business whose assets total around £6.0m after debt, with over £5m held by the father. Although both parents are in partnership, the land and core assets sit solely in his name.

“As things stand, he is facing an inheritance tax bill of around £900,000 if nothing changes. Even after reorganising assets to make full use of his wife’s allowance, he will still be looking at a liability of between £750,000 and £800,000.

“Because his children are still in their late teens and early twenties, he isn’t comfortable transferring assets to them yet, so he is planning to take out life insurance worth £800,000 to cover the potential tax bill.

“Under the proposed new approach, he would be taken out of the inheritance tax bracket entirely. That means no need for additional costs paying life insurance premiums, no pressure to move assets prematurely and far less financial strain at a time when farming businesses are already under tremendous pressure.

“This change would allow farming families like his to make sensible long-term decisions for the business rather than being forced into short-term tax driven moves that could have serious consequences.”

Robert Sullivan - GSC Grays

Article by

Robert Sullivan
MBPR PMIAGRM
Director

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