The Budget: implications for agricultural property relief

The long awaited Budget has now been delivered, although we await the details which will be published shortly.

The announcements made in the House represent extremely sobering news for farmers and landowners.  Business property relief (BPR) and agricultural property relief (APR) will be subject to a £1m combined cap of 100% relief; values in excess of this amount will only benefit from 50% relief from April 2026. 

The Chancellor claimed that the £1m 100% band would help protect small farms.  However, £1m is likely to be insufficiently generous for even the smallest of farms, meaning that practically all farmers can now expect to be subject to inheritance tax (IHT) on their deaths.  Those whose farms include amenity, or development value, or with higher local land prices (such as the South of England) will be particularly impacted by these measures.

Subject to the “small print”, for those landowners / farmers who can afford to give away their assets it is likely that, before these measures are introduced in April 2026, we will see a rush of landowners / farmers settling assets into trust or making gifts to the next generation in order to benefit from the current, much more generous, levels of relief.  Such planning will be attractive assuming that the current regime on lifetime gifts (known as PETs) and holdover relief from capital gains tax remain unaffected by the Budget.  Although there was no announcement in the House, the detail remains to be published and analysed.  For those who choose the trust option, careful thought will need to be given as to the funding of 10 year charges (which will be at an effective rate of 3% if APR is only available at 50%); for older trusts we are likely to see an increase in Court applications to enable income to be retained to meet these charges.

However, such planning will not be an option for those farmers who are financially dependent on their agricultural assets.  In order for gifts to be effective for IHT purposes, the donor cannot benefit further from them.  For these farmers, their planning options will be severely limited and the impact of the IHT charge on their death may, in the absence of other liquidity, lead to the break-up of their farms.  A sector which has low-yield and high-capital values is poorly placed to build up reserves to meet IHT charges. 

There are likely to be very strong reactions from the farming communities to these announcements.  APR was introduced to safeguard farms from being sold on death, providing inter-generational farming security.  These measures put this at risk.  In addition, for the reasons outlined above, the measures are most likely to harm farmers whose livelihoods depend on their farms.

The implications of these reforms will be widespread and will take some time to develop fully.  We may see an adjustment in land values, for example.  We also await the detail on how existing nuances in the APR (which, for example, treats let land differently to in-hand land) will carry across into the reformed relief.  This may produce further implications for landowners of let land, versus in-hand farmers.

The Spring Budget also promised to extend APR to environmental schemes.  This was seen as a key development in incentivising activities which support the UK’s climate targets.  It will be interesting to see whether this extension will be preserved under the Labour reforms and, if so, whether environmental schemes remains a commercially viable option for farmers which will (presumably) have to work harder than ever to build reserves in order to meet IHT on death.