The £1m threshold for agricultural and business property relief (APR/BPR) from inheritance tax (IHT) announced at the autumn budget in 2024, has focused minds on to farm succession, an Ulster Farmer’s Union (UFU) online event on Tuesday night was told.

“I don’t think we have ever been busier dealing with succession. We have been flat out all the time with this,” said Des Kelly from Cooper Parry Accountants.

He said it was one thing having a successor identified, but another making sure assets are protected when they are passed on to the next generation.

“You still need to look at how you have a partnership agreement or suitable protections so that if there are matrimonial issues or other problems down the line you don’t end up in a worse situation than having to pay IHT. It’s a complex thing that requires joined-up thinking right across your accountant, solicitor and insurer,” he said.

Where assets, such as land or a farmhouse, are gifted to the next generation, thereby making use of the seven-year rule, he warned farmers to be aware of Gifts with Reservation of Benefit. It occurs when a person continues to benefit financially from something after passing it on.

“If you gift land to a son or daughter who is not actively farming and you don’t pay a commercial value for the use of the land, then technically you are exposing yourself to a failed gift. If you have a failed gift, you have not achieved anything by doing it in the first place,” said Kelly.

Difference between APR and BPR

Also speaking at the UFU online event, Sean McCann from NFU Mutual highlighted that the new £1m threshold for APR and BPR combined, to apply from April 2026, is a relief per person, not per farm business.

He welcomed the fact government “did see sense” at last Wednesday’s budget and made the allowance transferable between spouses and civil partners, although pointed out that it does not apply to unmarried couples.

Assets such as land, farm buildings and the farmhouse should qualify for APR in most cases, while BPR is for a trading business, covering the likes of livestock and machinery.

To show how a future inheritance tax liability might be worked out in practice, he used the example of a widower, with 200 acres valued at £3m, along with £400,000 of livestock and machinery, as well as a farmhouse and buildings valued at £600,000. Total assets come to £4m. Currently, the entire estate qualifies for 100% relief from inheritance tax.

From April next year, the widower will have £1m of relief, as well as £1m coming from his late wife, taking the value of the estate down to £2m.

At last years’ budget government confirmed the £1m cap for APR/BPR and a 50% relief from inheritance tax beyond that. This 50% relief takes the value of the widowers’ estate down to £1m.

It is then that the personal allowance from both the widower and his wife of £325,000 is applied, taking the tax liability to £350,000. At a 40% inheritance tax rate, it is a bill of £140,000.

Insurance

McCann said that everyone’s situation is different, but there are various ways to help protect your liability, whether it is a whole of life insurance policy or term insurance for someone who gifts an asset, in the hope that they then live seven years.

For a young farming family, he recommends something like a 25-year term insurance.

“If anything happens, there is money there to pay the tax and protect the farm,” he said.

Pensions coming into IHT mix

From April 2027, unspent pension funds will also come into the value of an estate for inheritance tax purposes.

That could push the value of an estate above certain thresholds, including for those who might think they have an estate valued at below £2m and therefore qualify for the full £175,000 residence nil-rate band.

There is the added complication that if a pension holder dies after they turn 75 years old, then their family needs to pay income tax when the fund is drawn down.

According to Sean McCann from NFU Mutual, he expects to see more people take income out of their pension as they approach 75, including their tax-free lump sum.

There is also the principle of ‘Gifts out of normal expenditure’, which allows people to gift money so long as they are able to maintain their normal standard of living.

“If you can establish a pattern and meet the relevant conditions, there is no 7-year clock on those gifts – they are out of your estate immediately. You draw down pension, gift the money away and it’s gone and there is no inheritance tax,” said Kathy Blair from Cooper Parry Accountants. She added it was really important that good records are always kept.

Farm lobby continues fight on IHT

There was no significant change to planned reforms of IHT at last Wednesday’s budget, but there is still hope that some important amendments could be made, UFU Parliamentary officer, Alexander Kinnear told Tuesday’s online event.

Those amendments would be to the Finance Bill, which is the legislation necessary to enact the changes announced in the budget.

As part of the process, that legislation is currently going through Parliament, with a number of votes on Tuesday night, including Resolution 50 which limits APR and BPR.

The resolution was passed by 327 to 182, although 145 MPs abstained, including 86 Labour MPs, with one Labour MP voting against.

According to Kinnear, farm organisations have been lobbying around 100 Labour MPs, especially those in rural areas with relatively small majorities. He believes there is a group of 40 “who are not happy” and potentially willing to go against the government.

Given that strength of feeling, the government could agree to amend the legislation. “All hope is not lost. Few weeks to run yet,” he said.

However, he suggested it is unrealistic to think that 100% APR/BPR relief will be reinstated. Instead, it might be possible to do something to help people who are elderly or terminally ill and therefore not in a position to gift assets.

Farm organisations have also pushed for a clause where someone who inherits a farm is exempt from IHT if they farm it for seven years.