New UK farm inheritance tax rule will cause ‘significant challenges’, say accountants | Inheritance tax
A new inheritance tax regime for farms and family businesses in the UK will come into force on Monday, creating “significant difficulties” for those affected, according to accountants.
In October 2024, the government announced plans to impose an inheritance tax on farms, sparking reaction from many quarters.
After months of pressure from campaigners and MPs representing rural areas, ministers announced just before Christmas 2025 that they would increase the threshold for taxing inherited farmland from the original £1 million to £2.5 million.
The original announcement triggered protests across the UK; Farmers argued this would prevent many from passing their farms on to their children, and while the threshold change was welcomed by many in the industry, the tax changes remain controversial.
From now on, the first £2.5 million of agricultural and commercial estates will continue to receive a 100% relief from inheritance tax; Amounts over £2.5 million will receive a 50% discount. An allowance of £2.5 million will be given per person.
Elsa Littlewood, private client partner at accounting and business consultancy firm BDO, said the introduction of the new inheritance tax regime was “a turning point for the farming and family business community”.
He added: “Whilst some significant and welcome concessions have been made since these new rules were first announced, the new policy is still a significant departure from the previous regime and will pose significant challenges for covered businesses.”
He said many people need to devote much more time and attention to succession planning early in their lives to ensure their businesses are transferred in the most efficient way and in a way that gives them the best chance of surviving and thriving in the long term.
“The new regime will be particularly challenging for agribusinesses that are asset-rich but cash-poor,” Littlewood said.
“In certain cases this may result in beneficiaries having to sell land or assets to pay IHT [inheritance tax] obligations.”
The government has previously said had listened to the concerns expressed and stated that raising the threshold would significantly reduce the number of farm and business owners facing higher inheritance tax bills, ensuring that only the largest estates were affected.
