What is the impact of the Budget on farmers?
Sponsored Editorial with Harper Macleod
The Budget, described as one of the most significant in recent times, prompted speculation of its potential impact on farmers. Now we know the details.
From 6th April 2026, Agricultural Property Relief (APR) and Business Property Relief (BPR) will no longer be available at 100% for agricultural properties valued over £1m. Qualifying value exceeding the £1m threshold will earn relief at 50% resulting in an effective 20% tax rate.
HMRC says that 75% of estates claiming APR and most claiming BPR will remain unaffected. However, larger farm and business operations will face more significant challenges.
Key changes
The new rules apply to the combined value of assets qualifying for full APR and BPR. For instance, if a farm has £3m in APR and £2m in BPR, the allowance would be split proportionately—£600,000 for APR and £400,000 for BPR. This would result in an IHT bill of £800,000 for the estate.
Certain farm or business assets qualify for 50% APR or BPR, such as farmland owned individually but used by the farm business. These assets won’t count towards the £1m threshold. Any unused allowances won’t be transferable between spouses or civil partners.
Trusts holding APR or BPR assets will also be affected, with a £1m allowance limit. Despite these restrictions, meeting the criteria for full relief up to £1m remains beneficial.
For farmers
To qualify for APR, agricultural property must have been owned and used for farming purposes for at least two years before the owner’s death (or seven years if occupied by someone else). "Agricultural" is broadly defined and includes livestock farming, crop production, and fruit growing, but excludes grazing horses unless used for agricultural purposes.
Farmhouses qualify for APR if they are appropriately sized and essential to farm operations. In Scotland, most farmhouses should qualify for full relief if they are central to farming activity.
If farmers remain actively involved in the business, as much as their health allows, APR relief is likely to remain intact. For example, tasks like inspecting the land and delegating duties to farmhands or contractors would still support APR eligibility.
APR may become harder to claim if farmers diversify into activities like renewable energy or horse livery, although, in some cases, BPR may apply. Renting out farm cottages or using land for non-farming purposes, such as investment properties, would disqualify the farm from APR relief.
Businesses
For BPR, the property must have been owned by the deceased for at least two years and be part of a trading business (not a rental or investment business). Full BPR applies to interests in partnerships or businesses owned by sole traders.
Assets such as land, buildings, or machinery used in the business may qualify for 50% relief. However, under the new rules, 100% relief is limited to the first £1m. The remaining value will be relieved to the extent of 50% and taxed thereafter (effective rate of 20%).
Business owners should maintain thorough records of activities and assets, including aerial photos or social media documentation. Additionally, large cash balances in business accounts could be scrutinised, especially if they are disproportionate to the business’s needs.
Investors
Previously, shares in AIM-listed companies received full BPR after two years. Now, these shares will be taxed at 20%, and the £1m threshold will no longer apply.
Legal Rights
Under Scottish law, forced heirship rules prevent a deceased person from disinheriting their spouse or children. While these rules apply to moveable estate, farm/business properties or land can be considered “moveable” if considered within the business structure. This could trigger a legal rights claim, complicating estate planning for farmers.
Conclusion
While there is some good news, such as Capital Gains Tax (CGT) rates not rising as high as expected, the changes to APR and BPR will create challenges for many famers, business owners and investors.
The spouse allowance (for IHT and CGT) remains in place, and any IHT liability can be spread over 10 years, but the new rules will undoubtedly lead to an unexpected and potentially significant IHT bill for many. Despite these challenges, there are still ways to plan for IHT. For personalised advice, our Private Client and Rural Property experts are available to help.
