How trusts can still be used to mitigate Inheritance Tax hikes for farming families

Large estates and trusts will be worst affected by the planned reforms to IHT. Here’s a summary of the biggest changes so that you can start to think about mitigation strategies for your farm.

The change everyone is talking about – farmers will now have to pay IHT if qualifying business assets total a worth of more than £1 million. From April 2026, you’ll only get full (100%) tax relief on the first £1 million of your qualifying assets, as opposed to the previous rule, which meant qualifying assets were exempt from IHT. Anything above that gets only 50% relief, meaning half of the excess value is taxed at 40%, which works out to 20% effective tax. 

Shares not listed on recognised stock exchanges (e.g. AIM shares) will be restricted to 50% relief, regardless of the allowance used. 

Only those created after 30 October 2024 will be subject to the £1 million cap. Existing trusts created before this date that already hold qualifying assets will each get their own £1 million allowance, whereas those created after will have to share the allowance between them if created by the same person. These changes will take effect from 6 April 2026. 

Transitional period and anti-avoidance rules

Gifts of business or agricultural assets made between 30 October 2024 and 6 April 2026 fall into a transitional window. If the person making the gift dies on or after the end of this window, the new IHT rules will apply—even though the gift was made earlier, meaning the gift could be taxed more heavily than expected. 

Paying IHT over 10 years

As soon as the changes come into effect, IHT on qualifying business or agricultural property can be paid in ten equal annual instalments, interest-free. This change is designed to help families who inherit valuable but illiquid assets, like land or farms, manage large tax bills without needing to sell those assets. 

To illustrate the financial difference, consider John and Mary Smith. They have a £5 million estate, including £4 million in farm assets that qualify for IHT relief, and £1 million in other assets like their home and savings. Under the current rules, their children would only pay tax on the £1 million of non-farm assets, resulting in a £140,000 IHT bill. 

However, under the new rules, only £1 million of farm assets per person will get full relief. In John and Mary’s case, the remaining £2 million would be granted only 50% relief, increasing their children’s overall tax bill by £400,000 to a total of £540,000. 

The Smith children’s bill has almost quadrupled simply because a parent’s death occurred after the rule change. However, if John and Mary had considered the following options, they may have been able to mitigate this.

Given these changes, trusts remain a vital tool for succession planning, but their effectiveness depends heavily on immediate action and proper structure. 

1. Lock in full relief now

If you settle qualifying farm/business assets into a trust before 6 April 2026, you have the potential to benefit from the older, more generous rules, avoiding the £1 million cap for full tax relief. Not doing this would result in a greater portion of your estate being subjected to the new cap as well as the reduced 50% relief. For this to be possible, you must settle qualifying assets into a trust at least seven years before your death. 

2. Strategic use of multiple allowances

Reviewing ownership structures with your spouse is crucial now, as the £1 million allowance is per person and not transferable between spouses. To minimise IHT, both partners must be able to use their own £1 million APR/BPR allowance when they die. 

3. Protection and succession planning

As mentioned previously, trusts are key for achieving a smooth generational transfer with minimal tax burden. The new rules make it even more critical to plan precisely who owns what to maximise available reliefs across the family. 

4. Wills, gifting, and ownership review

These need to be reviewed at your earliest convenience. Strategic planning before the changes come into effect is essential to make the most of current IHT reliefs. 

After 6 April 2026, here’s what will happen: 

• Large farm estates will face a significantly higher IHT liability due to the cap on 100% relief.
• The majority of assets exceeding the £1 million APR/BPR threshold will be taxed more heavily.
• Couples who fail to plan the division of their qualifying assets may see large allowances go unused. 

To protect your farm, preserve your legacy, and pass on as much as possible to your loved ones, you must act now. Reviewing your will, making well-timed gifts, and carefully planning how your assets are owned could make all the difference.  

With the April 2026 deadline fast approaching, seeking tailored advice is a surefire way to ensure your estate is structured in the most tax-efficient way for your family – get in touch.