Up to £3m tax relief for jointly owned farms

Potentially the most popular option that farm families will explore for maximising inheritance tax relief is joint ownership.

The UK government has pushed this heavily in recent days, giving examples where married couples can pass on estates worth up to £3m to “direct descendants” without inheritance tax.

Addressing UFU members in Limavady on Monday, legal expert Peter Brown acknowledged that this can be the case in “precise circumstances”, but again the plan can quickly become complicated under many real-life scenarios.

“If you split your farm between you and your spouse, then eventually your farm will be in joint ownership across generations because one of you will pass away first, and that is not ideal,” he said.

The headline £3m figure for inheritance tax relief comes from each individual having £1m of APR plus the £325,000 “nil rate band” (NRB), which applies in all cases for inheritance tax.

Up to another £175,000 of relief under the “residence nil rate band” (RNRB) can apply to dwelling houses.

Those three reliefs added together come to £1.5m and across two people, the total then comes to £3m.

However, Brown is clear that this will not apply in all circumstances.

In particular, the RNRB only applies to the value of the person’s dwelling house, so for a married couple the house needs to be worth £350,000 for maximum relief.

On top of that, if an estate is worth over £2m, then the £175,000 of RNRB relief is reduced and it is not available at all for estates worth over £2.7m.

If the RNRB does not apply, then maximum relief is £1.325m per person (APR and NRB), which works out at £2.65m across a married couple.

This is also the maximum amount of relief available for property that is passed on to anyone other than “direct descendants”, as RNRB does not apply in these cases.

Brown pointed out this all requires very careful planning, as unlike other inheritance tax allowances, APR cannot be transferred to a spouse and so it should be fully utilised at the time of death.

“If I owned a farm with my spouse, my £1m allowance in APR dies with me and she does not get anything I do not use. Whereas my £325,000 (NRB) and £175,000 (RNRB) can carry over to my spouse,” he explained.

The key problem with the APR changes is that inheritance tax is based on capital, but it must be paid for with cash that most farmers do not have.

Peter Brown from law firm Martin King French & Ingram, cited UK government figures which show that farmers last year earned just 0.5% of the capital that was invested in their businesses.

“If I tried to sell a commercial unit that had rental return of 0.5% per year, nobody would touch it.

“No private equity firm would invest in a business unless you get 10% back each year,” he said.

At a packed UFU meeting in Limavady on Monday, one farmer said he would rather serve jail time than sell land to cover an inheritance tax bill. Is that an option if someone refuses to pay inheritance tax?

In response, Brown said he suspected it could be deemed a “criminal offence” with a custodial sentence, plus “civil proceedings” would be launched to recover the tax liability.

“They would appoint receivers and bankrupt you. It is a proven debt, and you would be sued for it. Not paying is probably not an option,” he said.

The changes to APR will mean valuations of agricultural properties for inheritance tax calculations will be closely monitored by revenue officials, UFU members have been told.

“We have been very casual in the past about valuing agricultural assets because the key question before was ‘is it agricultural?’ and not “what is it worth?’” said local solicitor Peter Brown.

He suggested this is a key reason why figures from the UK Treasury indicate 73% of UK farms that availed of APR for inheritance tax last year were valued at under the £1m limit.

This figure has been widely disputed by farmer representatives, with many pointing out that previous APR valuations do not reflect the full value of agricultural businesses.

In addition, Agriculture Minister Andrew Muir told MLAs on Monday that according to initial analysis by DAERA, it is “a reasonable estimate” that 33% of NI farms, including 75% of dairy farms, could be impacted.

In his talk to UFU members, Peter Brown pointed out that the value of livestock, machinery, buildings and cash needs to be considered in valuations.

Debt, including merchant credit, overdraft and hire purchase, are also considered when calculating the net value of an estate.

In the past, many farmers availed of Business Property Relief (BPR) too, but tax free allowances for both APR and BPR are to be combined from April 2026 at the new £1m limit.

“We are not talking about just valuing the farmland. What they are asking is, if you were to hand over the keys and walk away, what would you be looking for from a purchaser?”

“Everything should be included in that valuation. That is something probably missing from the government’s press releases,” Brown said.

The Ulster Farmers’ Union (UFU) “will not back down” as it campaigns to overturn changes to APR for inheritance tax, its deputy president has said.

“This is the single biggest item of change to our industry in a generation. We have to stand up to it now because the realities are stark,” said John McLenaghan.

As part of its campaign, the UFU is to hold a rally at the Eikon Exhibition Centre at Balmoral Park near Lisburn on Monday, 18 November, at 7.30pm.

The following day, the UFU will send a delegation to London as part of a “mass lobby” being organised by the National Farmers’ Union to press for a policy U-turn.

Capacity at the official event in Westminster is limited to 650 attendees, although McLenaghan suggested more events could be held over the coming weeks if progress is not made.

“I think there may be a ramping up in this process. We will keep all options open. Sometimes there needs to be an obvious and visible protest to have maximum effect,” he said.

All political parties at Stormont need to agree a ring-fenced fund for farm support, Agriculture Minister Andrew Muir has said.

As part of last week’s Autumn Budget, the UK Treasury said funding for agriculture in devolved regions for the 2024/2025 financial year will be “baselined” into each region’s block grant.

It means from 2025/2026 onwards, NI will no longer receive a ring-fenced budget for agriculture, which can only be spent on farm related schemes.

It could lead to NI farming having to compete with the likes of health and education at Stormont for funding allocations.

“The Executive needs to come together around the need to ring-fence the future budget for farming, fisheries and rural development,” Minister Muir told the NI Assembly on Monday.

“That is one key measure on which, hopefully, we can shortly take a decision to give an element of reassurance,” the Alliance MLA said.

From 6 April 2025, double cab pickups with a payload of 1t or more, will be treated as cars for tax purposes.

The change is included in the document published as part of the autumn budget.

At present, double-cab pickups are classed as light goods vehicles, so farmers can offset the full cost of the vehicle against tax. When classed as cars, much lower writing down allowances will apply.

The change to the status of double cab pickups was announced by the last UK government on 12 February 2024 and was to come into force from 1 July this year.

However, following intensive lobbying from representatives of farmers and the motoring industry, a U-turn was done a week later.

Local farmers face the prospect of higher fertiliser prices, after the UK government confirmed within budget papers that a new environmental tax known as the UK Carbon Border Adjustment Mechanism (CBAM) will be introduced from 1 January 2027. The CBAM will apply to various emissions-intensive sectors, such as cement, fertiliser, hydrogen, iron and steel.

Where these products are imported from countries that have lower (or no) carbon prices than in the UK, then they will be subject to a levy to bring them into line with costs that apply domestically under the UK Emission Trading Scheme.

Estimates suggest the levy on imported nitrogen fertiliser could be anywhere from £33 to over £50/t.

A similar CBAM is to apply in the EU from 2026.