Urgent: Succession planning for estates – key tax changes looming

Date: 15 Jan 2025

Karen Jones

Preserving family legacy: Critical tax changes demand immediate action.

Succession planning for landed estates and rural businesses in the UK is becoming increasingly critical as significant changes to Agricultural Property Relief (APR) and Business Property Relief (BPR) for inheritance tax (IHT) approach. Industry experts warn that these tax reforms could fundamentally alter the rural economy, forcing estate owners to reassess strategies to preserve their assets and legacies. With April 2026 as a key deadline for the changes, proactive planning and professional advice are paramount for ensuring long-term sustainability.

As well as this, the topic has gone viral with UK based celebrity Jeremy Clarkson, known for his television work and ownership of a farm, widely criticizing Prime Minister Keir Starmer and the Labour Party’s new policies.

The Looming IHT Reforms: What’s Changing and Why It Matters

David​​​​ Chismon, ​Partner, ​for and on behalf of accountants Saffery leads the discussion. “In 2025, succession planning for landed estates and rural businesses in the UK will be more critical than ever, given the significant restrictions to Agricultural Property Relief (APR) and Business Property Relief (BPR) for inheritance tax (IHT) looming on the horizon. These reforms represent a seismic shift in the tax landscape, which if unaddressed, could fundamentally change the nature of the rural economy. Analysis we published back in November suggested that, without effective succession planning, the average UK farm could be faced with selling up to 23 acres of land at the current market rate for the proceeds to cover the IHT that could be charged on the owner’s estate upon death. This potentially means 5 million acres of UK farmland are at risk of being sold off.” Chismon continues, “Estates with significant landholdings and diversified rural enterprises will need to carefully evaluate and address their succession strategies to mitigate potential tax liabilities. Obtaining professional advice at the earliest stage is paramount, particularly for those considering land acquisitions, asset sales, or trust structures. Further research we undertook in 2023 showed that a significant number of landowners don’t currently have a plan or process in place to prepare the next generation to run their estate. This will need to change as the rural sector grapples with the impending tax changes ahead of April next year, and embracing succession planning as an ongoing process—not a one-time decision—will ensure businesses and estates remain as resilient possible while safeguarding their legacies.”

The Financial Squeeze: Managing Liquidity and Rising Costs

Ian Macdonald at law firm, Wright, Johnston & Mackenzie, Tax and trusts partner, Glasgow says, “Generating a reasonable ongoing income from farms and rural estates, particularly smaller ones, has always been difficult although the price of land has continued to increase, and most landowners have substantial asset values as a result.  It is those values which are now going to be subject to IHT but where are farmers and estate owners going to find the cash to pay the tax without selling all or part of the land itself? Governments of all types have quite properly offered tax reliefs and exemptions for agricultural land and business assets, but any tax advantage will attract wealthy individuals and families wanting to take advantage of it even although they were not those for whom the relief was intended. The present government has seen this and has decided to reduce the tax benefit although they do not appear to have thought through all the likely implications. Owners of farms, estates and businesses all need to start a thorough review of their family and business priorities and plans, not only to address the imminent tax changes but to make sure that all the family generations are on board with the overall strategy.”

Succession Planning Tools: Trusts, Gifting, and Family Companies

Charles Richardson, Partner at law firm, Kingsley Napley, adds his view. “A rural business will usually be straightforward to picture, and the challenges facing them are beginning to reach the public consciousness after the Autumn 2024 Budget. The reduction to inheritance tax business property relief from April 2026 and the increase to employer’s national insurance from April 2025 will really put the squeeze on these businesses.”

“What is a landed estate on the other hand? Says Richardson. “It can be harder to pin that down, but to do so offers insight into its pressures and challenges. At one and the same time it may comprise one or more businesses, a farm, an employer, a landlord, a freeholder, a custodian of heritage assets, a community resource potentially, and that is all before you get to its primary purpose of being a home, supporting the livelihoods of the owning family. Take those individual components separately and the challenges are potentially endless, and far greater than just the recent tax announcements, significant as they are.”

Richardson continues, “Estates and rural businesses have very high capital requirements, with low or at best variable income outputs; the accounts might show big sums, but that rarely flows through to the bottom line. The squeeze on cash liquidity has always been an issue. Older properties are part and parcel of estates and carry the highest maintenance costs for example, and families need money to live on too. Rising costs and taxes mean that this cost squeeze will only tighten in coming years, especially while the cost of borrowing stays high. Factor in an untimely death and the prospect of an IHT bill on the whole estate, farm and business at 40% and you can get a sense of the financial jeopardy these estates and businesses are potentially in.”

“Being a land-based business, an estate is also acutely affected by extreme weather conditions such as flooding or drought, which might cause crop failure, and the longer-term environmental challenges of climate change. In many ways, landed estates and rural businesses are at the coal face of several of society’s greatest issues – the future of our food production, the environment and biodiversity – but with little support or incentive to help them in meeting the challenge.”

Richardson adds, “All well-managed estates and businesses will have their risks carefully registered as part of their business plans and will have a catastrophe plan in place. There is real concern amongst owners that they will need to be implemented wholly or in part in coming years. I am already seeing multiple properties being sold to fund the cost squeeze and this might have to accelerate to keep pace.”

Continuing Richardson says, “On the other hand, with these challenges are opportunities, the real benefits of land ownership. All estates will overall have one of these projects being discussed or in the works: renewable energy schemes on their land (a Labour policy); development opportunities for new housing or even lucrative warehouse sheds; and new opportunities to benefit from their land’s natural capital resource. However, the reality is that successful deals of this sort don’t always produce windfalls; they may be essential just to keep things afloat financially.”

Following the fires in California it has thrown up the issue of extreme weather of which flooding is more pertinent to the UK. Richardson shares his view, “We have seen clients whose land used by paying public visitors and nearby buildings flood multiple times each winter and in an extreme weather year has even flooded the main house on the estate, with clean-up costs in six figures. Unfortunately, the root cause was put down to long-term mismanagement of the riverbank and a flood plain upstream by others, which was entirely outside their control. Insurance was unavailable or at best unaffordable, and the cost of building flood defences was quoted in the multi-millions. Careful on-site management to alleviate the regular flooding, and the creation of a self-insurance fund as a reserve for the rarer extreme weather events were the only practical solutions available.”

Charles Frost​​​​, Associate at law firm, Michelmores says, “The proposed reductions in the relief from Inheritance Tax given by Agricultural Property Relief (APR) and Business Property Relief (BPR) will have significant ramifications for landed estates and rural businesses. They are assets which have often been held by families for generations. Owners view themselves as custodians – they work, preserve and improve the landed estate or rural business for their lifetime, try to keep them operational and intact, and then pass them on so that the next generation can continue to deliver value for the greater good (often as wealth creators, food producers, and employers). Ownership of these assets is also accompanied by commercial risk, economic pressure, and expense, with significant investment required on a daily basis.”

“From an advisory perspective, we await the detail of how these changes to APR and BPR will work in practice, as there is no draft legislation yet. However, faced with impending change, minds are focusing on what can be done to plan. In terms of lifetime giving and planning for succession. There are options to explore. The Budget made no mention of amendments to the “seven-year rule” for gifting assets for IHT (where the value of assets fall out of the IHT net if they are given away with no strings attached and the donor survives seven years). CGT gift holdover relief, which can apply to business assets and agricultural assets in the right circumstances, was also untouched – this can help facilitate lifetime planning without generating a CGT liability. Combined, these are still two valuable estate and tax planning tools for business owners. Transfers into trust (prior to 6 April 2026 with 100% APR / BPR and in the hope of surviving seven years) may be a valuable tax planning tool, and we are expecting this to be an attractive option for owners of landed estates and rural businesses.”

Balfour planning

Frost continues, “For landed estates, it looks like “Balfour” planning (where estates are structured as a composite trading business), will continue to be a key part of tax and succession planning. Whilst BPR relief will be capped and reduced to 50% from 6 April 2026, there was no mention of an increase of the required “Balfour” trading ratio from 50%, meaning that 50% BPR relief can still be achieved when there is a wholly or mainly composite trading business (there had been concern that the ratio would be increased, perhaps as high as 80:20 in favour of trading).”

Valuation of agricultural or business property

“It will be interesting to see whether the valuation of agricultural or business property is affected by the restriction of APR and BPR. We think this will be an active and evolving area, particularly if land ownership becomes more segregated to bank as much relief as possible as set out above. There may also be other ways of reducing the agricultural value of land for IHT mitigation purposes using corporate vehicles (we are seeing an increase in the use of family investment companies in this context), and through structuring via tenancies and leases.”

6 April 2026 deadline

Frost adds, “These changes to APR and BPR are profound and, in many cases, will require a review of strategy for all business owners, including landed estates and rural businesses. However, as the dust continues to settle, it is important to remember that there are options for structuring and ensuring that these assets can continue to be run and passed on efficiently. The timing of robust succession planning is going to become even more important. Estate succession plans should be considered carefully, as soon as possible, and of course well in advance of 6 April 2026. There are tools available to achieve succession goals and ambitions, even in times of concern and impending change.”

Simon Mitchell, Partner at Kent law firm, Thomson Snell & Passmore highlights the rural client base he deals with. “In terms of our clients, we have a large number of business and agricultural clients all over the South of England and throughout London as well. Farming clients tend to be land and property rich but cash poor, whereas clients owning other family businesses can come in all shapes and sizes. As a rule of thumb, the firm has plenty of clients worth between £5 million and £25 million and a fair number of ultra-high net worth clients worth more than that and in some cases more than £100 million.”

Mitchell shares his thoughts and advice to his clients, “Traditionally, farmers have relied on AR and BR to save on Inheritance Tax (IHT). However, from April 2026, only the first £1million of the combined value of business and agricultural assets will be able to attract full relief at 100% and any assets worth over £1million will have relief restricted to 50%. While AR and BR will remain valuable tax reliefs, and we would urge clients to ensure that they are maximising them, it will also be vital for farmers and landed estate owners to look at other estate planning measures.”

Mitchell adds, “I would also always recommend putting LPAs in place as part of any estate planning exercise. A financial LPA will allow individuals to appoint a deputy to manage their financial affairs if they become physically or mentally unable to do so. Lifetime gifting should also be carefully considered, and it is better to do this sooner rather than later to avoid falling foul of the seven-year rule. Gifts can include land or a share of a partnership, but the person making the gift must not retain any benefit. Making use of trusts or family investment companies could also be considered, depending on the circumstances. The key thing is for agricultural business to take expert advice that is bespoke to their unique situation and future plans.”

The Role of Insurance in Estate Preservation

Holly Hill, Associate Director at John Lamb Hill Oldridge switches the topic to talk about the use of insurance. “One option that these estates could consider is securing life insurance to mitigate these increased liabilities, thereby ensuring that the estate assets remain intact for future generations. It will be important to begin to move assets to the next generation. The loss of the 100% business relief rate means that significantly more of these gifts are now likely to become taxable from 2026 and gift protection can also be secured to make these transfers a closed deal.”

But on this point Mitchell adds his thought, “Insurance is typically used as a way of providing additional funds to pay inheritance tax rather than working to mitigate the tax itself and would generally be set up either by the clients directly with an insurance company or through an IFA.  For some elderly clients, the cost of the premiums can be a specific issue and could make it disproportionate to have life cover in place, as could the amount of the cover required as well. Typically, life policies of this nature are written into trust so that they can pay out on death but do not form part of the assured persons estate.” 

Trusts can help ensure insurance payouts are not taxed as part of the estate. Ed Willis, Senior Associate at Taylor Wessing explains, ” In terms of our client base, we act for a number of both individual and institutional estate owners with landholdings ranging from several hundred to 5,000 acres and to them, I am advising a holistic view of both the rural estate and the owner’s wider wealth. At its core will be how the estate is owned. As well as individual ownership, it may be prudent to explore the use of corporate or trust structures, as well as to interrogate any such existing structures to ensure that they continue to serve their original purpose. Thought should also be given to making lifetime gifts and whether risks to the integrity of the estate can be mitigated by taking out insurance against potential inheritance tax (IHT) liabilities.” 

Willis makes a further point with a word of warning. “When considering a succession strategy, it is also important to make sure that in looking to minimise the IHT exposure, owners consider the consequences of any action taken. This could be – among others – the potential loss of an uplift for capital gains tax purposes, the ten-year IHT charge for trusts or property becoming liable for the annual tax on enveloped dwellings.”

As to what Jeremy Clarkson will continue to say about the ‘tractor tax’ remains to be seen, but the April 2026 deadline for inheritance tax reforms looms, landed estates and rural businesses must act decisively. The proposed changes will demand a reassessment of traditional approaches to estate planning, with a focus on protecting assets, maintaining operations, and preparing the next generation. While challenges abound—ranging from tax burdens to environmental risks—there are also opportunities for growth and diversification. By seeking expert advice, leveraging available tools, and adopting a proactive approach to succession planning, estate owners can navigate this shifting landscape and secure their legacies for future generations.

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