A brand new inheritance tax regime for UK farms and household companies comes into power on Monday and will current “significant challenges” for these affected, in response to accountants.
In October 2024 the federal government announced plans to levy inheritance tax on farms – prompting an outcry in lots of quarters.
After months of stress from campaigners and MPs representing rural areas, ministers announced just before Christmas 2025 that they’d enhance the edge for taxing inherited farmland from the unique £1m to £2.5m.
The authentic announcement triggered protests across the UK, with farmers arguing it could forestall a lot of them from passing on their farms to their kids, and whereas the edge change was welcomed by many within the sector, the tax changes remain controversial.
From now on, the primary £2.5m of mixed agricultural and enterprise property will proceed to obtain 100% reduction from inheritance tax, with 50% reduction on quantities over £2.5m. Each individual will have a £2.5m allowance.
Elsa Littlewood, a non-public shopper associate at accountancy and enterprise advisory agency BDO, stated the beginning of the brand new inheritance tax regime was “a watershed moment for the farming and family business community”.
She added: “While there have been some important and welcome concessions made since these new rules were initially announced, the new policy is nevertheless a significant departure from the previous regime and will pose significant challenges for those businesses in scope.”
Many would wish to dedicate rather more time and a focus to their succession planning earlier of their lives to make sure their enterprise may very well be transferred in probably the most environment friendly method and in a means that gave it the very best likelihood of surviving and thriving over the long run, she stated.
“The new regime will be particularly challenging for farm businesses which may be asset-rich but cash-poor,” stated Littlewood.
“In certain circumstances it may result in beneficiaries having to sell off land or assets to pay IHT [inheritance tax] liabilities.”
The government previously said it had listened to the considerations raised and that elevating the edge would considerably reduce the variety of farms and enterprise homeowners dealing with larger inheritance tax payments, guaranteeing that solely the biggest estates had been affected.
