FAQs on proposed changes to Inheritance Tax legislation for farmers

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Speaking at many events and seminars following the Autumn Budget, I've stood in front of hundreds of farmers and answered many of their questions on the proposed changes to Inheritance Tax (IHT) legislation.

Many farmers are concerned about the proposed changes to Inheritance Tax (IHT) legislation and what such significant changes could mean for them. Below are some FAQs to help those who aren’t sure what to do make the first steps to put themselves, and their families, in a better position.

 

1. What should I prioritise when planning the succession of my business and gifting of assets?  

Your succession and gifting of assets either in life or on death shouldn't be purely about tax efficiency. It should be firstly about what you want to do for yourself and your family. Fit your plans within the tax legislation and new rules, rather than the other way round.

Tax is important, but it is equally important to consider:

• What your assets are and who you want them to go to
• Your family’s input and wishes
• What your current will says
• What your current partnership agreement is
• If and when you plan to retire from the farm
• How much income you need to live on

2. When should I start this process?

It’s important to start the process now, but don’t put any of the changes in place until we know the final details of the legislation.

You need to have considered all of the points above before starting to think about mitigating the potential IHT. You need a plan of where you would ideally like things to go (or not), and you need to know whether you're still going to require income from these assets. It’s all very well giving the farm away, but if you still need some income from it to live on, this needs to be factored in and structured correctly.

3. Will life insurance help pay my IHT bill?

For those in their 30s, 40s or 50s, who are not ready to gift assets to their children, life insurance will be something to consider. It is an effective way of protecting the next generation and providing a fund for inheritance tax should anything unexpected or tragic happen, rather than your beneficiaries having to sell off the farm.

Older landowners, who are giving land away, would only need life cover for seven years until gifts they have made drop out of IHT.

4. My children don’t want to take on the farm. What do I need to consider?

Every family business has different circumstances. There’s no one answer for everybody. In this situation, mum and dad need to decide if and when they would like to retire from the farm.

When you are ready to stop working or reduce your working hours, you could either sell the farm, rent it out or enter into a joint venture with another farmer. E

If they choose to retire, they can sell the farm, pay the appropriate Capital Gains Tax, and then distribute the money to their children. Alternatively, they can give parts of the farm to non-farming children to help save on IHT. In this case they might take on a tenant when mum and dad retire and it could be structured so both parents and the children own shares of the farm. While there’s a lot of detail to advise on here, after death, the children can choose what to do with the farm, such as sell it. Just because the next generation don’t want to farm, it doesn’t mean they can’t be involved in the succession planning and IHT planning.

5. With Business Asset Disposal Relief (BADR) rates increasing, should a sale be quickly progressed?

If people are keen on selling or have already planned to sell, they should move quickly to ensure the sale is completed before the next rate increase in BADR. The rate of CGT on qualifying gains is increasing to 14% on 6^th April 2025 and again to 18% on 6^th April 2026.

However, I don't think farmers should make any hasty decisions, just because the rate of BADR is increasing. It needs to be a decision you have thought through and you are happy with.

My ultimate aim is for clients just to pay the right amount of tax. Not more than they have to, but these decisions have to be solid business decisions. Then find the tax efficient way of doing them rather than the other way.

 

Planning is key 

These are huge, once in a lifetime-type decisions and very careful thought is required as it’s unlikely they will be changed.

By going through the thought process while waiting for the details of the proposals to be confirmed as law, you can then act accordingly. It is important to know your facts, figures and thoughts for the future. Having this information and decisions ready will ensure you put yourself in  much better position.

We hope all the pressure that has been applied to the Government results in at least some tweaks to the proposed changes, but, for now, we have to plan for the worst and hope for the best.