Inheritance Tax and Reliefs
21 January 2025The key headline for agriculture in the Autumn Budget is the change announced to Agricultural Property Relief (APR) and Business Property Relief (BPR).
Both APR and BPR are types of Inheritance Tax (IHT) relief and are central to consider in any succession planning decisions in any farming family. While APR is exclusively an agricultural relief, BPR is applied to all eligible business types, including farm businesses.
- APR is applied to eligible farmland when it is passed to the next generation - generally speaking, if farmland is being farmed then APR should apply.
- BPR is applied to business assets (in the case of farming - tractors, machinery, livestock etc) when it is passed to the next generation.

Inheritance tax
The key terms and figures when looking at Inheritance Tax (IHT) are -
Nil Rate Band - £325,000
- The total amount of any type of assets (e.g. property, money, cars etc) that can be passed to the next generation without incurring any taxes. This is available to everyone.
- In a marriage/civil partnership if one person dies and only uses a portion of their Nil rate band the used amount can be transferred to their spouse.
Example - Person 1 dies but only uses £200,000 of their allowance so the remaining £125,000 can be transferred to their spouse. That would give their spouse £450,000 to pass on without IHT.
Residence Nil Rate Band (RNRB)- £175,000
- This is available when a person has owned their property, it has been their primary residence and they are leaving it to a direct descendant e.g. Children, spouse, grandchildren. It is worth noting that a couple who are married or in a civil partnership can only have one primary residence between them.
- If a person’s estate is worth more than £2m (before any reliefs) a taper is applied, and the relief is reduced by £1 for every £2 that the value exceeds £2 million.
Example - If a person’s estate is worth over £2.35m, then no Residence Nil Rate Band is available.
Agricultural Property Relief (APR)/Business Property Relief (BPR)
The amount of relief available from APR and BPR can vary greatly depending on the set up within your business. It is impossible to give an accurate figure of the IHT implications without knowing the individual circumstances of a farming business. The following gives you a few key points.
- The £1 million relief applies to the value of the land/buildings (APR) and the value of the remaining business assets (BPR) – there is not a separate relief for each, it is a combined cap of £1m for both APR and BPR
- The £1m cap is per individual and for their lifetime.
- Any assets over this limit are taxed at 50% of the full IHT Rate
- Full IHT rate = 40%
- Effective rate = 20%
- Anti -forestalling rules have been brought in – so any lifetime gifts made between 30/10/24 and 5/4/26 will still be subject to the £1m cap if the transferor dies on or after the 6/4/2026 and within 7 years of the gift.
- The sliding scale for the 7-year rule remains unchanged – see HMRC’s page for the full explanation
- For APR to apply the transferor must:
- Have occupied the relevant property for agricultural purposes for at least 2 years or
- Have owned the relevant property for at least 7 years, and that property has been occupied by the transferor or someone else for agricultural purposes.
Inheritance Tax and the succession planning involved to mitigate it is unique to each business so seek professional advice before making any decisions. Figures provided here are basic examples and for illustrative purposes only.
Examples of reliefs
Below are two tables which illustrate the difference between 4 different sizes and values of farm businesses. They illustrate the amount of IHT that would potentially be due.
Example 1 shows a Husband-and-Wife farming partnership with a 50/50 split.
Example 2 shows a Sole Trading Farmer where everything is owned in one name.
Assumptions:
- This is a rough guide on farm related assets only. It takes no account of other personal assets – e.g., cash, pensions, non-farm property etc.
- Bare Land has been valued at £7,000 per acre for simplicity.
- The farmhouse has been valued at £450 000.
- Business stock (crops, livestock etc), business cash at hand or in the bank or any other non-fixed business assets have NOT been included in the valuations.
Example 1 - Husband & Wife Farming Partnership with a 50/50 split
Farm size (ac) | Bare Land Value (£7000 per acre) | Farmhouse Value (£) | Farm Buildings & Equipment (£) | Total (£) | Less: Nil Rate Band (£) | Less: Residence Nil Rate Band (£) | Less: APR/BPR relief (£) | Amount subject to IHT (£) | IHT Due (£) |
---|---|---|---|---|---|---|---|---|---|
100 | 700,000 | 450,000 | 300,000 | 1.45m | 650,000 | 350,000 | 2m | - | - |
200 | 1.4m | 450,000 | 600,000 | 2.45m | 650,000 | 350,000 | 2m | - | - |
500 | 3.5m | 450,000 | 1.5m | 5.45m | 650,000 | - | 2m | 2.8m | 560,000 |
1000 | 7m | 450,000 | 2m | 9.45m | 650,000 | - | 2m | 6.8m | 1.36m |
Example 2 – Sole Trader where all assets are owned in one name
Farm size (ac) | Bare Land Value (£7000 per acre) | Farmhouse Value (£) | Farm Buildings & Equipment (£) | Total (£) | Less: Nil Rate Band (£) | Less: Residence Nil Rate Band (£) | Less: APR/BPR relief (£) | Amount subject to IHT (£) | IHT Due (£) |
---|---|---|---|---|---|---|---|---|---|
100 | 700,000 | 450,000 | 300,000 | 1.45m | 325,000 | 175,000 | 1m | - | - |
200 | 1.4m | 450,000 | 600,000 | 2.45m | 325,000 | 1m | 1.125m | 225,000 | |
500 | 3.5m | 450,000 | 1.5m | 5.45m | 325,000 | - | 1m | 4.125m | 825,000 |
1000 | 7m | 450,000 | 2m | 9.45m | 325,000 | - | 1m | 8.125m | 1.625m |
Becka Henderson, SAC Consulting
Related Resources
https://www.fas.scot/article/national-minimum-wage-and-employment-taxes/
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