The Autumn 2024 Budget: Inheritance Tax and Family Farms

The Labour Government’s 2024 Autumn Budget announced significant changes to the inheritance tax system including around farm businesses.

On the 30^th October, Chancellor Rachel Reeves stood at the dispatch box and delivered Labour’s first budget in 14 years. Entitled ‘fixing the foundations to deliver change’, it is fair to say the budget will certainly deliver change.

There were shocks and surprises throughout the 77-minute budget announcement. However, the most significant changes were those made to APR (Agricultural Property Relief) and BPR (Business Property Relief). These are the biggest modifications made to the Inheritance Tax system for decades. Both will have a huge impact on farm businesses.

What will this mean for your farming business and farming family? Tom Stuckey, Partner at Westcotts, explores.

The new APR/BPR £1 million allowance

With effect from 6 April 2026 a new allowance will apply to the combined value of property in an estate qualifying for 100% business property relief and 100% agricultural property relief.

The allowance covers transfer of:

• property in the estate at death.
• lifetime transfers to individuals in the 7 years before death (“failed potentially exempt transfers”).
• chargeable lifetime transfers where there is an immediate lifetime charge, for example when property is transferred into trust.

For example, upon the death of an individual, the allowance will cover £1 million of property qualifying for business property relief, agricultural property relief, or a combination of both – e.g. £400,000 of agricultural property relief and £600,000 business property relief.

Assets automatically receiving 50% relief will not use up the allowance. Any unused allowance will not be transferable between spouses and civil partners.

When the transfer is over £1 million

From 6 April 2026, the rate of relief will be 50% for the value of qualifying assets over £1 million. This means an interest of £2 million in a farming business would attract 100% relief on the first £1 million. Then, it would attract 50% relief on the second £1 million. This means a potential inheritance tax liability of £200,000, and an effective inheritance tax rate of 10% before the application of any other exemptions and the nil-rate band. Liabilities relating to agricultural and business property are currently paid in equal annual instalments over 10 years in certain circumstances.

Nil-rate band and other exemptions

Estates will continue to benefit from the nil-rate band, residence nil-rate band where available, and other exemptions (such as for transfers between spouses and civil partners). Transfers to individuals more than 7 years before death will continue to fall outside the scope of inheritance tax.

What does this mean for farming families?

The government has stated that the reforms will mean the majority of claims for these reliefs will be unaffected. However, many agricultural sector commentators believe the government have grossly underestimated the number of farming families that will be impacted.

Previously, farmers would be familiar with the Inheritance Tax planning advice of the oldest generation holding farm property until death. The APR/BPR qualifying property would then pass free of Inheritance tax to the next generation with its base value uplifted to the probate value. This facilitates a lower capital gains tax bill should the property be subsequently sold compared to the liability had the land been gifted to the next generation with a gift hold-over relief claim being in place.

The change to inheritance tax relief will no doubt transform how older-generation farmers look at their businesses and their role. To reduce inheritance tax liabilities in future, older generations will need to be more open to transferring the business earlier. Large proportions of the farm may need to be given to the younger generations as lifetime gifts to reduce the chance of inheritance tax bills.

For those older farmers who will be impacted by this change, there is not as much time to make alternative tax planning arrangements to mitigate liabilities.

Key questions for the future of your farming business

Going forward, farming families will need to consider several new elements.

Where land is owned by one person, would it be appropriate to transfer some land into the name of a spouse?

This would be transferred at no gain/no loss but could make use of a spouse’s £1 million APR/BPR allowance if not already utilised.

Do Wills need to be updated?

Families should consider the benefits of land and business property being passed to the next generation on the death of the first spouse rather than passing to the surviving spouse.

Luckily, the valuable gift hold-over relief available for APR and BPR qualifying assets remains unchanged. This relief defers capital gains tax by the transferor and transferee jointly claiming gift hold-over relief. This at least gives some farmers the chance to prevent this new Inheritance tax charge. It is likely that many farmers will make use of this relief, deciding to give land and other business property away sooner rather than later. This would mean that should they survive 7 years, the asset is removed from their estate for inheritance tax purposes.

Which assets, if any, do I gift in my lifetime and what should I keep?

Careful thought will be needed to give the right assets away. Considering what assets might be sold at a gain by the next generation will play a part in making the best possible use of your £1 million allowance.

Transferring the ownership of assets also comes with risk. We are probably all aware of the risk associated with divorce, but many other points should be considered before you gift an asset away.

Insurance such as Life Cover policies will no doubt become more common in future, in order to mitigate any possible inheritance tax liability upon death. Similar insurance products could be put in place to insure against someone dying within 7 years of making a gift.

Could Trusts be used more widely in future for farming businesses?

Although the use of trusts would not be suitable for every family, they are a very valuable tool which serves a purpose far beyond tax planning. The government will publish a technical consultation in early 2025, focusing on the detailed application of the allowance to lifetime transfers into trusts and charges on trust property. This will inform the legislation to be included in a future Finance Bill.

Next steps for your farming business

Many of our farming clients will have to completely revisit their succession and capital tax planning. This will require detailed recording of land ownership, reviews of partnership agreements and careful checking of wills. At Westcotts we understand that working closely with your solicitor and other professionals archives the best possible results for you.

If you think that you will be impacted by these budget changes, do not panic. Westcotts are here to help you and your farming business.

Please contact your usual Westcotts partner to discuss how best to manage these changes or Tom Stuckey at tom.stuckey@westcotts.uk or call 01297 33388.