Should You Still Put Your Farm in Trust following the Autumn Budget?

Back in January 2024 Graham Doubtfire explored the practicalities of putting a farm in trust for succession planning in his article How Trusts Can Aid Succession Planning for Family Farms.

So, in the wake of the seismic changes to inheritance tax Agricultural Property Relief and Business Property Relief announced in the Budget on 30 October 2024, Paul Harris, Private Client Tax Partner, reassesses the position.

The historic inheritance tax (IHT) position

Agricultural property has for many years benefited from 100% IHT Agricultural Property Relief (APR), unless it is subject to a pre-1995 Agricultural Holdings Act tenancy, in which case the relief is at 50%. For most business assets not qualifying for APR – which might for example include the development value of farmland – 100% Business Property Relief (BPR) may be available.

As a result, while lifetime transfers into most trusts attract an immediate 20% IHT charge on any amount in excess of the available nil rate band – typically £325,000 – the availability of 100% APR/BPR has historically protected family farms in trust from any IHT liability.

Likewise, while the trust’s assets are in principle subject to an IHT charge of up to 6% of their value every 10 years, as well as IHT exit charges if property leaves the trust, the availability of APR/BPR has meant that for many farming family trusts little or no IHT will actually have been payable on any of these events.

What’s changed following the Autumn Budget?

From 6^th April 2026, on each ten-year anniversary charge and exit charge, the trust’s entitlement to 100% APR/BPR will effectively be limited to the first £1 million of qualifying property, in line with the treatment of qualifying property chargeable to IHT on the death of an individual. Qualifying agricultural or business property in excess of the allowance will only benefit from 50% relief.

Following these changes a typical farming family trust could therefore be liable to IHT at an effective rate of 3% every ten years. The tax can be paid in ten annual interest-free instalments, but that still begs the question – how will this new liability be funded?

The government plans to carry out a technical consultation in early 2025 which will focus on the detailed application of the allowance to lifetime transfers into trusts, and to ten year and exit charges on trust property.

Until we see the draft legislation coming out of that consultation, we can only assume that the existing rules for what qualifies for 50% or 100% APR and BPR on the family farm will continue to apply;  that assets which currently qualify for only 50% relief – such as pre-1995 AHA tenancies – will not count towards the £1 million allowance, and that capital gains tax holdover relief will not be restricted.

So, do trusts still have a role to play in family farm succession planning?

We will need to await the outcome of the technical consultation to be sure, but it does seem that trusts will remain a useful option for farmers who can afford to give away assets.

Granted, there may be more IHT to pay on trust assets than was previously the case, but the trust will have its own £1 million allowance independently of the settlor’s allowance. (Note that the allowance will be split if a settlor establishes multiple trusts after Budget Day.)

Moreover, the important non-tax benefits of putting a farm in trust for farming families – such as asset protection and providing for non-farming heirs – which Graham touched on in his article – are unaffected by the Budget proposals.

Next steps

As with all succession planning matters, trusts require careful consideration and drafting. Although 6^th April 2026 is still some time away, there will likely be an ‘unholy rush’ in the months leading up to that date – so the sooner you start talking about your options to your professional advisers the better.

For any questions about this article or for advice that’s tailored to you please don’t hesitate to reach out to Paul Harris or a member of our Private Client team. Get in touch by calling 0330 058 6559 or emailing hello@scruttonbland.co.uk