presentation Wealth Insights | presentation US Families | presentation UK Families | November 11, 2025

The Changing Landscape of Inheritance Tax: What the Latest IHT Reforms and Budget uncertainty Mean for Farm Estates

Written by James Sellon, CFA, CFP™

Changes to the UK’s inheritance tax (IHT) regime have long been a concern for farming families, whose wealth is tied up in land and buildings that cannot easily be sold to pay a tax bill.

I would say that the number of clients who own UK farmland is in the minority but for those that do these changes have resulted in significant consideration and analysis. As such we thought we would put pen to paper and outline our current thinking on this matter.
To start at the top, the recently announced reforms to Agricultural Property Relief (APR), due to take effect in April 2026, mark the biggest shake-up in decades and have caused significant frustration amongst farmers which has added additional pressure on the government.

These changes will introduce, for the first time, a cap on the value of farmland that can pass tax-free, meaning all high-value farms will soon face inheritance tax for the first time.  Before we understand what has changed it is worth understanding the current state of affairs:

  1. The Current System (Until 5 April 2026)

Under the existing rules, qualifying agricultural property benefits from 100% Agricultural Property Relief (APR) on its agricultural value.

This means that the IHT rate is effectively 0% on working farmland that meets the qualifying criteria.

To qualify:

  • The land must be used for agricultural purposes – i.e. for growing crops or raising livestock.
  • It must have been occupied for agricultural use for at least two years (if farmed by the owner) or seven years (if let to someone else).
  • Any farmhouse or building must be “of a character appropriate” to the land and genuinely part of the working farm.

If these tests are met, the agricultural value of the land is completely exempt from IHT.
However, non-agricultural value (such as development potential or diversified uses like holiday lets or solar) does not qualify and remains taxable at 40%.

  1. The New Rules from 6 April 2026

From April 2026, the government will introduce a £1M cap on the amount of agricultural property that can qualify for full (100%) APR per person.

After that threshold, only 50% relief will apply, meaning that any agricultural value of the land above £1M will be taxable at half the standard 40% rate.This gives an effective 20% IHT rate on the excess value.

This marks the end of the long-standing “zero IHT” position for many family farms. The government’s stated aim is to make the system “fairer” by limiting full relief to smaller farms, though critics argue it will hit multi-generation businesses hardest.

  1. The US Comparison

From an American viewpoint, the UK’s new regime will look increasingly familiar.
In the US, the federal estate tax also carries a 40% top rate, but only applies to estates above roughly $30M for a married couple.

Below that, there is no estate tax at all.In the UK, by contrast, the threshold for general estates from April 2026 will be just £1M for Agricultural (and Business Property) as well as £325k per person Nil Rate Band (with an additional Residence Nil Rate Band of £175k per person on estates worth less than £2M).

For Americans who own UK farmland, it means:

  • Their US estate may remain untaxed, but
  • Their UK-situated farmland is likely to attract UK IHT under the new rules.

That makes cross-border estate planning essential for US citizens and dual-nationals with UK land. The tax consideration comes down to the size of the relative estate.

  1. Political Proposals: Lifetime Cap and PET Extensions

In advance of the UK budget the IHT debate is intensifying. Former Labour leader Neil Kinnock and others have proposed a lifetime cap on the total value that can be transferred tax-free, effectively limiting how much wealth (including farmland) can ever pass without tax.  This change would be a wholesale change to the Inheritance Tax regime. The Guardian were the first to report on this in August.1 Since then it has been reported on by numerous non-mainstream institutions but it doesn’t seem that the government has been floating trial balloons or rolling the pitch for such a fundamental change in the regime.

If introduced, this would cause significant disruption.  Farms are not liquid assets, a lifetime cap could force families to sell productive land simply to pay tax, unless agriculture is carved out of the rules.

Separately, rumours continue that the seven-year rule for Potentially Exempt Transfers (PETs) could be extended to ten years or more in a future Budget.  That would further delay succession and increase uncertainty for families who already plan gifts years in advance to protect their estates.

  1. Why Farmers Are Concerned

The farming community argues that these changes:

  • Ignore the liquidity problem – land can’t easily be sold to pay a tax bill.
  • Undermine generational continuity – family farms often operate across multiple lifetimes.
  • Fail to recognise public value – farms support food security, conservation, and rural employment.
  • Risk consolidation – by pushing smaller family farms into selling land to large agribusinesses.
  1. What Farmers Can Do Now

Although the reforms won’t bite until April 2026, the window to plan is open now. Farmers should:

  1. Review ownership structures.
    The ownerships of farms should be considered. Transfers between spouses or civil partners are IHT-free, deferring any tax until the second death.
  2. Plan the succession.
    On the first death, the farm can pass to the surviving spouse tax-free.
    The surviving spouse can then gift the farm (or part of it) to the children, which counts as a Potentially Exempt Transfer (PET). If the spouse survives seven years, no IHT will be due on that gift. If they die within seven years, IHT may apply (with taper relief after year 3). There is risk that in the UK Budget this PET system might be reviewed/extended.
  3. Use the pre-2026 window.
    Gifts or transfers made before 6 April 2026 will still benefit from unlimited 100% relief under current rules, a key planning opportunity.
  4. Ensure continued agricultural use.
    Land must remain actively farmed to qualify for APR both now and under the new regime.
  5. Obtain accurate valuations.
    Farmers should know what portion of their estate might exceed the £1 million cap and plan accordingly.

 

  1. Looking Ahead

The coming years will reshape how rural estates plan for succession.  From April 2026, many farming families will, for the first time, face a 20% effective inheritance tax on part of their land, even when it remains in agricultural use.

If proposals for a lifetime cap or extended PET period also materialise, further upheaval is likely, and the government may need to carve out farms to prevent widespread financial strain across the countryside.

Given short deadlines farmers should discuss with their advisers what actions they might wish to consider in advance of the Budget however given farmers have some time before April 2026 the key is to review, plan, and act early while the full 100% relief still applies.

References

  1. UK inheritance tax: how does it work and what may be changing? | Inheritance tax | The Guardian

The Legal Stuff

  • MASECO Private Wealth is not a tax specialist. This article does not take into account the specific goals or requirements of individuals and is not intended to be, nor should be construed as, investment or tax advice.
  • MASECO LLP is authorised and regulated by the Financial Conduct Authority for the conduct of investment business in the UK and is registered with the US Securities and Exchange Commission as a Registered Investment Advisor.