What Inheritance Tax Do Farmers Pay? How Agricultural Estates Can Be Protected from IHT

Owning land or running a family farm comes with its own unique financial challenges, but few are as significant as inheritance tax (IHT).

While many agricultural estates benefit from valuable reliefs, the rules are complex, and recent legislative changes mean farmers can no longer assume their estate will pass to the next generation tax-free.

That’s why so many ask:

“What inheritance tax do farmers pay?”

The answer depends on the type of land and assets held, how the business is structured, and - as of recent reforms - whether your reliefs are capped.

At Belgravia Capital Wealth Management, we specialise in helping farming families reduce or eliminate inheritance tax.

In this guide, we’ll explain how IHT works for farmers, what reliefs are available, and how you can plan ahead before the 2026 rule changes come into force.

Do Farmers Pay Inheritance Tax?

Yes, unless they qualify for Agricultural Property Relief (APR) and/or Business Property Relief (BPR).

These reliefs can significantly reduce or eliminate IHT on qualifying assets. However, not all agricultural assets are automatically exempt. You must meet certain criteria and recent reforms are limiting these exemptions from 2026.

Let’s break it down.

1. Agricultural Property Relief (APR)

APR is the main relief available for farms and agricultural estates.

What does it cover?

APR can offer up to 100% relief from inheritance tax on:

• Agricultural land and pasture

• Farmhouses and cottages (if occupied for agricultural purposes)

• Buildings used for farming (e.g. barns, storage units)

• Growing crops and trees

Conditions:

• The property must have been occupied for agricultural purposes by the owner or a tenant for at least:

  
  

  • 2 years if occupied by the owner

  • 7 years if let to someone else

• 
  

• The land must be used primarily for farming

• Farmhouses must be of a character appropriate to the land

From April 2026:

A £1 million lifetime cap will apply to Agricultural Property Relief (combined with BPR). Anything above this cap will receive only 50% relief, instead of the current 100%.

2. Business Property Relief (BPR)

BPR applies to farming businesses and assets not qualifying under APR, such as:

• Diversified income (e.g. farm shops, holiday lets)

• Shares in farming partnerships or companies

• Equipment, vehicles, and livestock

• Farmhouses that don’t meet APR criteria

BPR can offer:

• 100% relief on trading business assets held for at least 2 years

• 50% relief on assets not wholly owned or used in the business

Important:

• Passive investment activities, such as letting out land, often don’t qualify

• BPR is being capped at £1 million per person (combined with APR) from April 2026

3. Mixed Assets and Common Pitfalls

Many farming estates include both qualifying and non-qualifying assets. Here’s where things get complicated:

• Development land: Land with planning permission may no longer qualify for APR or BPR

• Let land: Long-term lets to non-family members may disqualify some reliefs

• Farmhouses: Must be proportionate to the land and occupied by the farmer to qualify

• Diversified businesses: Income from holiday lets, biomass, or solar panels may disqualify parts of the estate from full relief

The character of occupation, use, and proportion of trading vs. investment activity will determine how much of your estate is taxable.

4. Pensions, Investments and Other Assets

Many farming families also hold:

• Personal pensions (which will be subject to IHT from April 2027 if unused)

• Investment portfolios (may not qualify for BPR, especially AIM shares after April 2026)

• Residential property or second homes

These are not covered by APR or BPR and may be fully subject to inheritance tax.

What Happens If Your Farm Doesn’t Qualify for Full Relief from IHT?

You could face a 40% tax bill on any portion of your estate not covered by APR or BPR.

Let’s look at an example.

Example: The Rising IHT Bill

The Smith family owns:

• 600 acres of farmland (£3 million)

• Farmhouse (£800,000)

• Diversified holiday let business (£500,000)

• Personal investments (£300,000)

Before April 2026:

• Full APR and BPR applied to £4.3 million

• Investments subject to IHT

After April 2026:

• Combined APR/BPR capped at £1 million per person

• Excess assets above £1 million get only 50% relief

• Investments and diversified assets now face full IHT

Result: A potential IHT bill exceeding £700,000 if no planning is done in advance.

How Can Farmers Reduce or Eliminate Inheritance Tax?

1. Act Before April 2026

• Transfers of qualifying assets made before the relief cap takes effect may retain 100% relief

• Consider gifting land or restructuring business ownership in advance

2. Review Asset Use

• Ensure land and buildings are used primarily for agriculture

• Occupy the farmhouse or restructure to meet APR standards

3. Separate Non-Qualifying Assets

• Ring-fence investment or development land to limit its impact on your main estate

• Use trusts or gifting to reduce taxable value

4. Use Life Insurance to Cover the Tax Bill

• A whole-of-life policy written in trust provides liquidity without increasing the estate’s value

5. Equalise Estates Between Spouses

• Balance ownership to maximise use of both partners’ APR and BPR allowances

6. Take Professional Advice

• APR and BPR rules are highly technical and HMRC regularly challenges claims

• A professional valuation and pre-planning audit can prevent costly errors

How Belgravia Capital Wealth Management Can Help Farmers with Inheritance Tax

We specialise in helping farming families and rural estates:

• Review and restructure their asset portfolios to qualify for maximum relief

• Prepare for the 2026 APR and BPR caps

• Draft tax-efficient wills and succession plans

• Protect estates with insurance and trust strategies

• Minimise the impact of non-qualifying assets

• Ensure the farm stays in the family for generations

Our team works closely with solicitors, accountants, and agricultural valuers to provide joined-up, expert advice tailored to your land and legacy.

Conclusion: What Inheritance Tax Do Farmers Pay?

Without planning, potentially a lot.

While APR and BPR can shield farming estates from inheritance tax, the rules are complex and tightening.

From April 2026, even families who’ve previously expected to avoid IHT could face six-figure tax bills.

But with timely, tailored advice, much - and sometimes all - of that tax can be avoided.

Contact us at contact@belgraviacapital.co.uk for a full inheritance tax review and planning strategy for your farm or rural estate.