Farms and estates tend to be asset-rich, multi-generational businesses that require strategic inheritance tax planning, especially when the government shifts the goalposts overnight.
At the turn of the century, 1,000 acres of average arable farmland would have been worth maybe £2.5 million, according to the Knight Frank Farmland Index. Today, that block could easily be worth £10 million.
This huge jump in asset values shows why tax planning is so important, particularly when it comes to Inheritance Tax (IHT). With the returns from farming relatively low, compared to the value of land, receiving a sizeable Inheritance Tax (IHT) bill could be crippling for many businesses.
In order to ensure a smooth transition from one generation to the next, our advice to owners of landed estates is to review how their businesses are structured and think carefully about succession planning.
Prior to the new Labour government’s first budget in autumn 2024, IHT planning wasn't such a huge issue. Agricultural Property Relief (APR) shielded most farmland from IHT, and Business Property Relief (BPR) protected other assets. This meant tax planning probably wasn't as high up the agenda as it should have been for some farms and estates.
But Chancellor Rachel Reeves has controversially changed the rules so that APR and BPR combined will soon apply to only the first £1 million of the value of any inherited businesses. IHT will be levied at 20% on the remainder.
As of April 2026, the IHT liability on that 1,000-acre block of land will have gone from potentially zero to a whopping £1.8 million after reliefs, but before allowances.
Unsurprisingly, accountants and several of my rural colleagues now tell me that most of the work they are doing for farms and estates is working out how to mitigate these supercharged IHT bills. What many people don’t realise is that life insurance could play a vital, cost-effective role in their strategies.
The simplest way to avoid a hefty IHT bill is to give your assets away before you die, for example, to your children. However, you must live for seven years after the gift has been made to avoid any tax on your estate. To protect against an early demise, it is possible to take out a fixed-term insurance policy that would cover any IHT liabilities.
Gifting is not always appropriate though, especially for those who are not ready to pass on their business to the next generation. However, a whole-of-life insurance policy will cover any IHT bills up to a specified age, even 100.
Both concepts sound relatively simple, but there are potential pitfalls, so taking professional advice is always recommended.
To avoid an IHT bill on any payout, life insurance policies need to be set up using a trust structure. It might also make sense to use multiple fixed-term policies to cover the potential IHT liabilities from gifted assets, as this tapers depending on when they are triggered during the seven-year period.
It is also possible to use a mix of whole-life and fixed-term policies. And it goes without saying that it makes sense to act quickly, as policies become more expensive the older the holder.
It might be tempting to hope for the best or leave the next generation to shoulder the IHT burden, but life insurance policies provide peace of mind and, vitally, protect the long-term future of multi-generational rural businesses.
Learn more about what's happening in the rural property market in the lastest edition of The Rural Report.