Ploughing ahead: Chartered Financial Planner offers strategic financial planning tips and insights for advisers and their farmer clients in a changing tax landscape

With significant tax changes on the horizon, financial advisers must help their farmer and agricultural clients to navigate complex inheritance and succession planning. From Agricultural and Business Property Relief updates to effective wealth transfer strategies, expert planning is essential to secure the future of farming businesses. Offering practical tips to help you to help your clients, we’re grateful to Chartered Financial Planner, Jack Mason-Brown,  Owner of Mason-Brown Financial Planning Limited, for sharing his insights as well as his experience as an adviser as follows:

Having provided comprehensive financial planning advice to many farmers and agricultural clients over the years, I’ve developed a deep understanding of the unique pressures faced by those in the farming industry. Farming is far more than just a business; it’s a demanding way of life. Farmers often work exceptionally long hours for relatively modest profits, all while playing a crucial role in feeding the nation.

For most farmers, ensuring the farm’s long-term viability for future generations is a top priority. As a result, my advice has consistently incorporated succession planning to help families protect their wealth and secure the continuation of the farm.

However, succession planning can be particularly challenging when some children wish to continue the farm business while others do not. The key challenge is to create a fair, rather than strictly equal, outcome. Since those taking on the responsibility of running the farm often face considerable risk and pressure, they may require a greater share of the business assets to ensure its continued success.

The Importance of Succession Planning

The key to succession planning is to start early. Engaging the next generation in the decision-making process and gradually introducing them to business responsibilities can greatly improve the chances of a smooth transition.

Recent budget proposals have made succession planning even more urgent and complicated, stressing the need for careful financial planning considering all options. The proposed changes to Agricultural Property Relief (APR) and Business Property Relief (BPR) have created significant concern, particularly in the agricultural community. In some cases, these proposed changes have sparked shocking conversations about whether individuals might be better off passing away before April 5th, 2026, rather than after. A distressing reflection of the uncertainty these changes may bring to families.

Upcoming Legislative Changes and Inheritance Tax

There are ongoing consultations regarding pensions, APR, and BPR with an expected update on these consultations expected in the middle of this year.

Potential Changes to IHT:

• IHT Thresholds: The IHT threshold freeze is expected to continue until 2030, with a 40% tax rate applying to assets exceeding this limit.
• Pensions and IHT: From April 2027, pension assets will likely become subject to IHT (with some exceptions discussed below).
• APR and BPR Changes: From April 2026, the first £1 million of combined APR and BPR qualifying assets will be exempt from IHT. Any excess value will receive only 50% relief.
• Business Asset Deferral Rate: The rate will increase from 10% to 14% in April 2025, and then to 18% in April 2026.

These changes could significantly increase the tax burden for farmers, landowners, and business owners based on the conversations I have been having.

Inheritance Tax Allowances

Understanding IHT allowances is key to effective tax planning:

• Nil Rate Band (NRB): Individuals have a £325,000 tax-free allowance. Assets exceeding this threshold are taxed at 40%.
• Residence Nil Rate Band (RNRB): For those leaving their main home to direct descendants, an additional £175,000 allowance applies. However, this reduces gradually for estates exceeding £2 million.
• Transferable Allowances: If one spouse dies without fully using their NRB or RNRB, the unused portion can typically be transferred to the surviving spouse. This allows married couples to pass on up to £1 million tax-free. 

What are BPR and APR?

Business Property Relief (BPR)

BPR is a tax relief that reduces the value of qualifying business assets for IHT purposes. It applies to assets within an actively trading business, whether a sole proprietorship, partnership, or limited company. Shares in a business or property used for business operations may qualify. The relief is either 100% or 50%, depending on the asset type.

Agricultural Property Relief (APR)

APR reduces the taxable value of agricultural property, such as farmland or farming buildings, for IHT. The property must be used for agricultural purposes and typically must have been owned for at least two years before the owner’s death. APR can provide 100% relief on agricultural land and buildings, while other farming-related assets, like equipment, may qualify for 50% relief.

A tax adviser or financial planner can help determine eligibility for BPR and APR, as complex rules govern how different assets qualify. APR is based on the agricultural value of a property, which may be lower than the market value. For example, a farmhouse’s agricultural value might be only two-thirds of its market value, meaning full APR wouldn’t apply to the entire market price.

BPR and APR Allowances & Planning Considerations

Each individual has a £1 million BPR/APR allowance upon death. However, this allowance is not transferable to a spouse, which is a major concern for the agricultural community. Without policy changes, updating Wills to ensure the APR/BPR is fully utilised upon the first death may be advisable.

Under proposed rule changes, if an individual passes away, they can claim £1 million of APR/BPR at 100%, with any remaining qualifying assets receiving 50% relief.

Gifting & Inheritance Tax Planning

When gifting assets, it typically takes seven years for the gift to fall outside of the estate for IHT purposes. These gifts first use up IHT allowances before any tapering relief applies. The tapering relief only reduces IHT if the gift exceeds the nil-rate band (£325,000 per person) and available APR and BPR allowance they are using for the gift made for seven years.

Gift with Reservation Rules

If someone gifts an asset but continues to benefit from it, such as living in a house they’ve given away, it will remain part of their estate for IHT calculations. This is especially important for farmers passing their business to the next generation. A tax adviser can help ensure they are not seen as retaining benefits from the farm, which could negate potential IHT reliefs.

Inheritance Tax Mitigation Strategies

1. Reviewing Wills

A well-structured Will ensures agricultural assets are passed tax-efficiently. It may be beneficial for 50% of agricultural assets to go directly to children or grandchildren on the first death, as this avoids a capital gains tax charge and ensures utilisation of APR/BPR allowances.

Within two years of death, a beneficiary can use a Deed of Variation to pass inherited assets directly to the next generation, helping to remove them from their estate without waiting for seven years.

3. Hold-Over Relief

This relief allows gifting of APR/BPR qualifying assets without triggering immediate capital gains tax (CGT). Instead, CGT is deferred until the recipient later sells the asset. This can be done via a discretionary trust or business asset hold-over relief.

However, hold-over relief is capped at £325,000 per individual for assets that don’t qualify for APR/BPR. If gifting significant assets, life insurance may be advisable to cover potential tax liabilities during the seven-year period and potentially on the residual estate.

Impact of New Rules on Historic & Future Gifts

Gifts made before the October 2024 Budget should retain unlimited APR/BPR relief. However, any gifts made after this date will be subject to anti-forestalling rules, potentially limiting reliefs.

Inheritance Tax Exemptions

• Spouse Exemption – Assets passed to a spouse are IHT-free. The surviving spouse inherits assets at their market value at the time of death, avoiding CGT, but must still survive seven years if making further gifts.
• Charitable Gifts – Donations to charities are IHT-free and can reduce the estate’s tax burden.
• £3,000 Annual Gift Allowance – Individuals can gift up to £3,000 per tax year without it counting towards IHT. Any unused allowance can be carried forward one year.
• Small Gifts (£250 per person) – Unlimited £250 gifts can be made to individuals, as long as they haven’t already received part of the £3,000 annual allowance.
• Living Cost Support – Payments for an ex-spouse, dependent, or child under 18/in full-time education may be exempt.
• Gifts from Regular Income – If gifting is regular and does not affect the donor’s standard of living, it may be exempt. Pension income can qualify.
• Wedding Gifts – Gifts before a wedding are tax-free if they meet these limits:
  • £5,000 to a child
  • £2,500 to a grandchild/great-grandchild
  • £1,000 to any other relative or friend

Pensions

Pensions in the past have been a very useful tool for IHT planning with Pensions currently sitting outside an individual’s estate for IHT purposes. However, with the changes from 2027 what could an individual consider with their Pensions and contributions when it comes to estate planning:

1. Pensions for Limited Company Directors

For those running a limited company, pensions offer a tax-efficient way to build wealth. Unlike many IHT mitigation strategies and tools that require personal funding, pension contributions can be made directly from the company. These contributions reduce the company’s taxable profit, providing a corporation tax saving while building the pension fund outside the estate.

2. Pensions and Wealth Transfer

Pensions can pass to a surviving spouse free of IHT. If the pension holder dies before age 75, the remaining pension funds can be accessed tax-free by beneficiaries (subject to limits). If death occurs after age 75, beneficiaries will pay income tax on withdrawals at their marginal rate.

The government is reviewing potential changes to pension taxation, particularly regarding potential “double taxation,” so this area should be monitored closely.

3. Tax-Free Growth

Pensions provide a tax-free growth environment, making them an effective long-term savings tool. When invested appropriately, they can outperform other savings vehicles while avoiding annual tax on growth.

4. Using Pension Income for Gifting

Regular pension withdrawals can be strategically used to mitigate IHT. If pension income exceeds living expenses, the excess can be gifted to family members. Provided these payments are regular and do not affect the pension holder’s lifestyle, they may qualify for the “gifts out of regular income” exemption, meaning they immediately fall outside the estate for IHT purposes.

To enhance this strategy, recipients could reinvest the gifted amounts into their own pension, creating a tax-neutral cycle that supports long-term financial planning.

5. Buying Commercial Property with a Pension

A Self-Invested Personal Pension (SIPP) or Small Self-Administered Scheme (SSAS) can be used to purchase commercial property, including farmland or business premises.

This strategy can provide:

• Cash Flow: Selling a property to the pension fund releases capital that could compensate non-farming children or support the farm’s financial needs.
• Tax Efficiency: Rent paid by the tenant (which may be the family business) is tax-deductible for the business and grows tax-free within the pension fund.

However, this must be structured correctly. The pension must purchase the property at market value and receive commercial rent, ensuring compliance. Capital gains tax may apply if the property has appreciated in value since its original purchase, but this could be a lower tax rate compared to drawing the monies out of the Pension; 24% compared to the higher rate and additional rate tax at 40% or 45% depending on their tax status and how much is withdrawn.   

Therefore, Pensions could still offer valuable opportunities for IHT planning, particularly for those with business interests or complex family wealth structures. With potential tax rule changes under review, seeking professional advice is essential to ensure pension strategies align with long-term goals.

Trust Planning

Many clients often feel apprehensive about trusts, largely due to previous experiences or concerns about trust tax rates, which are typically among the highest. However, in my experience, trusts are more commonly used for monetary assets rather than physical assets when offering advice in this area.

There are several types of trusts available, and a financial planner can provide detailed guidance on how each may suit your circumstances. Certain trusts allow investment growth to sit outside your estate for IHT purposes while still allowing you to retain access to the original capital if needed.

Another type of trust arrangement involves gifting money into a trust where part of the gift immediately falls outside your estate for IHT purposes, with the remaining amount exiting your estate after seven years. This type of trust can also provide a fixed income stream for the individual making the gift throughout their lifetime, with no immediate tax liability on those fixed withdrawals.

For those who are comfortable gifting money without the need for future access to the capital or income, there are trusts that allow you to gift funds while maintaining control over when and how beneficiaries can access the money. This is achieved through the appointment of trustees who manage the funds until you decide the time is right to pass on the assets.

The combination of complex tax changes and the unique challenges of agricultural succession planning make it essential to seek professional advice. Working with a specialist financial planner or tax adviser can help you build a robust strategy that protects your family wealth, maximises tax reliefs, and ensures the long-term success of your farming business.