Richard Cussell

The last fifteen months or so have been a real rollercoaster for farmers and business owners in connection with Inheritance Tax. 

In the Autumn of 2024 advisers such as I were complacently telling our farming and business clients not to worry about Inheritance Tax.  Their assets were subject to a relief from the tax at a rate of 100%.  Furthermore, their pensions pots, which they had saved for over long years, were also exempt from tax. 

That situation changed radically in the October 2024 budget. A number of measures were announced:-

(a) Inheritance Tax relief at 100% would be restricted to £1 million worth of business and/or agricultural assets.  Furthermore, that relief did not transfer automatically to, for instance, spouses (as most other reliefs do transfer).  Any farming and business assets over the first £1 million would be subject to tax at 20%.  This was to come into force in April 2025.
(b) Pension pots were to be subject to Inheritance Tax at 40% from April 2027. 

Accountants, financial advisers and lawyers who specialise in tax planning, such as myself, have been very busy over the 13 months since.  Our general advice included:-

(a) Transferring farming assets into the joint names of a husband and a wife where they both farmed in partnership.
(b)  Making subtle Wills which then made sure that the £2 million worth of agricultural and business property assets were tax free.
(c)  Consider the possibility of transferring farmland and business assets during lifetime and before April 2025, so as to get the assets down to the next generation in a tax efficient way.
(d)  On the matter of pensions, I do not think there is yet a radical solution to this but having spent 25 years advising clients to leave their cash in the pensions and spend their own cash, which was taxable first, that advice has reversed.  There is no Inheritance Tax reason now not to take the tax-free lump sum from pensions and spend and enjoy it before their other cash, since it is now subject to the 40% Inheritance Tax on death.

There was speculation prior to the November 2025 budget which caused a minor tsunami of activity with farmers and businesspeople wishing to transfer assets and beat the budget deadline.  The November 2025 budget came and went and there were no major changes to the tax position save that, the £1 million cap was after all able to be carried forward from husband to wife.  That made tax planning a little easier in Wills. 

In December 2025, just before Christmas, the government then gave farmers and business persons a Christmas present.  The £1 million cap was increased to £2.5 million. 

We now have a situation where farmers and business persons can hold £2.5 million worth of business or agricultural assets and not pay any tax.  For a married couple, we could easily make that £5 million. 

I can now advise my individual farming and business clients that in reality they can hold £2.5 million worth of qualifying assets but also hold £325,000.00 worth of non-qualifying assets and still not pay any tax.  The latter £325,000.00 is their nil rate band.   For a married couple I can advise them that the first £5 million worth of business and agricultural assets are tax-free plus another £650,000.00 worth of non-agricultural assets. 

The position with regard to pensions remains unchanged.

Whole of life policies (life policies designed to pay the tax) have, I have noticed, become more popular as a result of this.  These are matters upon which independent financial advice is essential.

It has been something of a surreal 13 months.  I am sure many farmers and business people felt very anxious and concerned about the proposed changes and may now be relieved to know that they are not quite as bad as first set out.  However, may I say that this has at the very least, been a catalyst to persuade people to do something about succession planning.  Notwithstanding Inheritance Tax succession planning is essential. 

Let me say, that if you are concerned about Inheritance Tax and estate planning, my advice to you is to enlist not only the help of a lawyer experienced in such matters but also, an accountant well versed in capital taxes and very probably a valuer and a financial adviser.  You might be surprised at how often I am sat around a table with some or all of the above.