Beyond the Farm Gate: Inheritance Tax Changes Set to Impact Businesses and Landowners

The recent budget's inheritance tax changes are causing disruption in the agricultural sector and beyond; they will arguably reshape how family businesses and landowners plan their financial futures. As inheritance tax planning specialists, in this blog we explain what these changes mean for business owners and landowners across various sectors.

What is changing?

Since 1984, farmers and agricultural landowners have enjoyed near-total exemption from inheritance tax through two critical reliefs:

1. Agricultural Property Relief (APR): 100% relief on land and farm buildings. 
2. Business Property Relief (BPR): 100% relief on:
   1. Livestock
   2. Machinery (tractors, combine harvesters)
   3. Diversification assets (farm shops, holiday cottages)

What's Changing from April 2026

• The current 100% tax relief for agricultural and business properties will be limited to the first £1m of value
• Any value exceeding £1m will attract an effective tax rate of 20%, instead of the usual 40%
• Tax may be paid, interest-free, in instalments over a period of up to 10 years

Who's Really Affected?

The government claims that it will only affect 500 estates. However, industry experts paint a completely different picture:

• The National Farmers' Union estimates that as many as 66% of all farms in the UK, an estimated 138,000, may fall into this trap
• The Country Landowners Association estimates that as many as 70,000 farms may be affected by the tax changes
• Business owners with high asset values should also pay close attention

The Hidden Tax Threat to Your Business Inheritance

Most business owners don't realise just how exposed their life's work could be when it comes to these inheritance tax changes. The new budget changes aren't exclusively about farming, they are a wake-up call for ANY business with valued assets.

What Constitutes a Business Asset?

From plant and machinery to a square footage of property and investments, it all adds up to the total value of your business. Understanding how these stack up is important to navigating the new inheritance tax position. So, let's break down those assets that could unexpectedly push you over that critical £1m threshold.

• Specialised machinery: Sometimes one piece of industrial equipment alone can cost between £250,000-£500,000
• Commercial vehicles: Fleet values can quickly escalate
• Property and real estate holdings
• Inventory and stock
• Specialised equipment
• Intangibles such as intellectual property and brand value

While the tax limits may sound generous, the truth is much more complicated. You could see those seemingly comfortable £1m limits disappear much more quickly than you think once all of the above are added up. To reinforce this point, we have outlined two hypothetical, but entirely realistic, business scenarios that demonstrate just how quickly asset values can build up and catch an unsuspecting business owner with an unexpected tax liability. These examples are carefully calculated illustrations of how the new tax rules could fundamentally reshape business succession planning.

Scenario 1: Manufacturing Business

• Factory building: £ 750,000
• Specialised production lines: 500,000
• Company vehicles: £ 250,000

Total asset value: £1.5m

Potential tax liability: £100,000 instead of previous full exemption

Scenario 2: Technology Company

• Office premises: £ 600,000
• Custom-developed software and IP: 400,000
• Advanced computing infrastructure: £ 250,000

Total asset value: £1.25m

Potential tax liability: £ 50,000 at reduced rate

As you can see from the examples above, business assets tend to build up organically over time because of operational needs, not because of extravagance. The factory needs its machinery, the tech firm needs the infrastructure, and both need their premises. These are not luxury items that one would easily dispose of – these are essential building blocks of the operation.

The examples also emphasise the fact that while a business may be "worth" more than £1m on paper, this rarely actually translates to available cash. This is, of course, the problem: tax bills require liquid capital, but the value of most businesses is tied up in essential operating assets that cannot easily be sold without crippling the business.

Forward planning

With inheritance tax changes arriving in 2026, standard approaches may not be adequate. The most effective strategies can take 5-10 years to implement through restructuring, trust formation, and building liquid reserves, meaning business owners should start this planning now to retain flexibility and maximise their options. Our team can help turn these challenges into opportunities for strategic growth and sustainable succession.

Our Expert Services Include:

• Comprehensive succession planning
• Tax efficiency optimisation
• Business structure analysis
• Future-focused strategy development
• Personalised advisory services

Don't wait until the changes of 2026 are upon us. Start planning for your business financial future today with a comprehensive strategy tailored to your unique needs.