Over the last two years, inheritance tax and Agricultural Property Relief (APR) have been under the spotlight, and you'd be forgiven for being a bit confused about the current situation.
Today’s position is that, as of April 2026, each taxpayer is entitled to up to £2.5 million of combined APR and Business Property Relief at 100% relief (with any unused allowance transferable between spouses or civil partners). Assets above this threshold receive 50% relief, resulting in an effective inheritance tax rate of 20% on the excess.
As a consequence of the new limitations on APR and BPR, a large number of 'panic' transfers of farms and agricultural assets were made, in some cases prematurely transferring the farm to the next generation in a bid to avoid IHT.
Transferring or gifting farming assets without proper advice can cause a number of issues to arise in the future, in some cases resulting in costly disputes that exceed the IHT that would have been payable.
Where problems arise
Sadly, disputes between farming families, either on the death of a family member or during their lifetime, are increasing in number.
The changes to IHT reliefs have seen land-owners opting to immediately gift away or transfer their assets to family members to avoid the assets being subject to IHT on death (providing the transferor survives seven years).
Unfortunately, failure to properly consider and obtain advice on any lifetime or succession planning can result in disputes arising. This is often as a result of gifted assets not being protected for their intended beneficiary, or gifted without proper consideration as to the loss of control over those assets.
Pitfall: gifts passing to an unintended recipient
Lifetime gifting may be an effective tax mitigation strategy (when specialist advice is obtained beforehand). However, there are a number of circumstances in which your gift could fall into the legal ownership of an unintended person.
If, for example, you gift assets to your adult child and this gift is used to purchase a property held in the joint names of your child and their unmarried partner, your gift may inadvertently have been transferred into the joint names of both your child and their partner, resulting in the partner being entitled to half of it if their relationship breaks down.
This risk is even higher when gifting assets to a child who is married. Without a proper pre-nuptial or post-nuptial agreement, the assets you gift to your child may fall into the 'matrimonial pot' during any subsequent divorce.
How to avoid this:
The above scenarios can be avoided by seeking specialist asset protection advice, and if necessary, putting in place either a Declaration of Trust, Cohabitation Agreement, or Pre/Post-Nuptial Agreement (the appropriate document will vary depending on circumstances).
Pitfall: broken promises (proprietary estoppel)
Many farming families are familiar with the term 'proprietary estoppel'. Essentially, if a person believes that they have acted to their detriment in reliance on promises made to them (e.g by working on the family farm for little/no salary, on the assurance the farm would pass to them), it is possible they could seek to enforce that promise if it is rescinded at a later date.
Proprietary estoppel claims are not only available on death, but also if the promise is rescinded during the lifetime of the 'promissor'. This means that if a farmer opts to gift away an asset or land to their daughter, having previously promised that asset to their son (and their son had acted to their detriment in reliance on that promise), the son could seek to either enforce the promise (i.e. have the asset transferred to them) or be compensated financially for their loss.
Proprietary estoppel claims are complex, costly and lengthy for all involved. Sadly, the costs involved in disputes like these can result in a large asset such as a farm being sold to meet the legal fees.
How to avoid this
- Have open and honest conversations with your family about your succession plans and intentions from an early date.
- Involve your trusted advisors. A specialist lawyer (with the input of your family accountant, if required) can discuss how to achieve your goals.
- Put in place proper employment contracts and/or partnership agreements to ensure there is absolute clarity.
The two pitfalls above are just a brief example of the numerous disputes and issues that can arise as a consequence of steps being taken to tax and succession plan without proper advice.
Trowers' Private Wealth and Private Wealth Disputes Team can assist you in achieving your objectives, whilst avoiding the pitfalls above.
Considering liquidity: how life insurance can help
Farms and estates can be asset rich but cash poor, making it difficult for families to pay inheritance tax without selling parts of the business.
Specialist life insurance, written in trust can help you in the following ways:
- Provide immediate funds to pay inheritance tax.
- Protect family ownership of the business.
- Prevent forced sales.
- Remove the payout from the taxable estate.
As an example, a Whole of Life policy can create certainty for families with large estates ensuring heirs have the cash needed at the right time.
If you own a business or agricultural land you should review whether life insurance would provide cost effective protection.
With thanks to James Jones of Knight Frank – Finance, for his specialist input.
Head of Insurance
James.Jones@knightfrankfinance.com
