What is Agricultural Property Relief?

During the 2024’s Autumn Budget, the government spoke about providing better support for small family farm businesses. This led to the reformation of agricultural property relief (APR). Not only does the relief offer financial aid, but it builds long-term support for smaller farming businesses – helping them navigate through economic and environmental fluctuations.

For more information on financial support for farmers, contact one of our expert HR consultants today. We’ll talk you through your legal rights and responsibilities regarding tax contributions, whilst helping you minimise business losses and disruption.

In this guide, we’ll look at what agricultural property relief is, who qualifies for it, and how to protect your farming business from hefty inheritance tax deductions.

What is agricultural property relief?

Agricultural property relief (APR) is a type of inheritance tax assistance available for certain farmers and landowners.

The relief helps reduce the amount of tax they need to pay when passing their farmland to their descendants. For example, their children who will inherit farmlands and estates. During the 2024 Budget speech, it was announced that from 6 April 2026:

1. The full 100% relief from inheritance tax will be restricted to the first £1 million of combined agricultural and business properties.
2. Landowners will pay inheritance tax at a reduced rate of 20% (rather than the standard 40%).
3. The new tax rate can be paid in instalments over 10 years interest-free. (Previously, this had to be paid all at once, which is similar to other types of inheritance tax).

The new rules on agricultural property relief are in addition to all other spousal exemptions and nil-rate bands that people can access for inheritance tax. This means that two people with farmland can pass on up to £3 million without paying any inheritance tax (depending on individual circumstances.

Why was agricultural property relief changed?

The government is working towards providing better protection for small family farms; and financial help is a great place to start.

According to their statistics, the top 7% of claims (117 claims) accounts for 40% of the total value of agricultural property relief. This means it’ll cost the taxpayer £219 million. The top 2% of claims (37 claims) accounts for 22% of agricultural property relief. This costs the taxpayer £119 million.

It’s unfair for smaller claimants to receive such a significant amount of relief each year. If anything, this money is better used for other areas, like public services.

Who does agricultural property relief affect?

Agricultural property relief is expected to affect the wealthiest 500 farm estates each year. Many smaller farms will not feel the impacts of the changes.

In fact, almost three-quarters of farmland and estates that are claiming agricultural property relief won’t be affected by the reform. (This is based on the latest government statistics as of 2024).

However, the new tax rules may force some farmers to sell their family farms to pay inheritance tax contributions. This may hurt those who have had the lands within their family for generations.

Will changes to agricultural property relief affect other ways of passing on farmland?

The changes to agricultural property relief may affect certain ways of passing on farmland to others – but this will depend on individual circumstances. For example:

Spouses/civil partners: If you make transfers between a spouse or civil partner, the rules on full exemption still apply. This means any agricultural or business assets left to them will be tax-free.

Descendants: Following the death of a surviving spouse, a farm estate can pass on £1 million free of inheritance tax. But that’s only if they leave their residence to a direct descendent/s. For example, children or grandchildren.

Individuals: Any transfers to individuals more than seven years before death will continue to fall fully outside the scope of inheritance tax. The rate will decrease from three years after the transfer (see table below):

Are there other forms of funding for farmers?

During the 2024 Autumn Budget, the Chancellor announced other varieties of financial funding aiming to support farmers and the overall agriculture industry. They looked at:

Food production: £5 billion will be allocated to help farmers produce food over the next two years. This is set to become the largest amount ever allocated for sustainable food production.

Environmental disasters: £60 million will be allocated to the Farming Recovery Fund. This aid aims to help farmers recover from environmental disasters, like flooding.

Disease outbreaks: £208 million will be allocated to protect the nation from serious diseases that may threaten the farming industry, food security, and human health.

What is the difference between agricultural property relief and business property relief?

Agricultural property relief (APR) is a type of inheritance tax assistance available for certain farmers and landowners.

Whereas business property relief (BPR) is a valuable inheritance tax relief that business owners use. Business owners may receive relief at either 100% or 50% depending on their individual circumstances. BPR is available after an ownership period of two years.

Both are different types of inheritance tax relief used to reduce the amount of tax owed on the transfer of assets. Historically, it was common for these two terms to be used transferrable, even though they are distinctly different.

Get expert advice on agricultural property relief with Peninsula

The farming industry faces a heap of grief and pressure, especially when meeting consumer demands. That’s why property inheritance is often used as a means of stable income and investment for their future.

Peninsula offers expert advice on agricultural property relief. We offer specialised guidance with HR contracts and documentation – ensuring all farming business is protecting from unforeseen financial losses and tax deductions.

Want to find out more? Contact us on 0800 028 2420 and book a free consultation with one of our HR advisors today.