The Chancellor’s Autumn Budget gave family poultry farms an unexpected new headache in terms of inheritance planning. Michael Barker looks at the current state of play
Benjamin Franklin famously said that nothing in this world is certain except death and taxes. But following Chancellor Rachel Reeves’ bombshell Autumn Budget in October, little has seemed more uncertain and frustrating to farmers than trying to unpick – and counter – controversial new inheritance tax (IHT) rules.
It was an announcement that few had seen coming, with farmers under the impression that the incoming Labour government was not going to meddle in their succession affairs. That led to a widespread feeling of betrayal among the farming community, with the NFU subsequently launching a sustained campaign to persuade the government to reverse its decision. That included organising a large-scale demonstration in Westminster to air the industry’s grievances, as well as a media push to highlight the potential jeopardy for British food production of the new laws.
Three months down the line, Poultry Business seeks to address lingering questions around the new inheritance tax IHT rules.
Remind me, what was announced in the Budget?
There were actually two big hits for farm business owners in Reeves’ Budget. The first one surrounded National Living Wage (NLW) hikes and changes to employers’ National Insurance (NI) contributions, while the second centred on IHT. In summary, the government plans to raise the NLW by 6.7% for over-21s from 1 April, while employers’ NI contributions are hiked to 15%. With the threshold at which employers start paying NI for an employee falling from £9,100 currently to £5,000, it represents a double whammy for businesses that farmers fear will adversely impact their profitability.
And what’s happened to IHT?
Essentially, it boils down to Agricultural Property Relief (APR) and Business Property Relief (BPR), both of which are being reformed from April 2026, and with a much lower cap than many analysts had anticipated. The current 100% relief continues for the first £1 million of combined agricultural and business assets that are passed on following an individual’s death, but from next year that relief will fall to just 50% for sums above that figure. The new tax, as it relates to agricultural land and buildings, can be paid interest-free in instalments over 10 years.
What’s the latest in terms of the industry fightback?
Since November, over 270,000 farmers and members of the public have signed an NFU petition to overturn the so-called ‘family farm tax’, and in recent weeks even supermarkets have been getting behind the campaign. In January Tesco called on the government to pause the rollout of the policy pending a full consultation, Aldi backed an NFU letter to halt the changes, and Lidl expressed concern that the new IHT rules would hold back investment in British food production. The government, however, has held firm. At the Oxford Farming Conference, while accepting that the IHT changes were unpopular, Defra secretary Steve Reed disappointed farmers who hoped the tax would be rolled back, and instead blamed the former Conservative government for creating a “£22 billion black hole” in the public purse. He argued that lack of profitability in the farming sector was a bigger problem than IHT and announced Labour’s ‘Farming Roadmap’ to turn the situation around.
How worried is the poultry industry?
The British Free Range Egg Producers’ Association held a webinar in December to unpack the Budget changes and outline to farmers what their options are. Launching the webinar, BFREPA policy adviser Gary Ford detailed the result of a survey of 96 members, which revealed that 87% have already looked at the impact the new rules are likely to have on their family farm. On a scale of 1 to 10, respondents averaged a 7 in terms of how much impact it is expected to have, suggesting a moderate to significant impact. Some 59% have already taken specialist tax or legal advice about their succession and inheritance affairs, either before or after the Budget announcement. And on average, respondents rated themselves 5.5 out of 10 in terms of how confused they are about the changes.
What do financial experts say?
The main bulk of the BFREPA webinar featured Sean McCann, a chartered financial planner with NFU Mutual, explaining the IHT changes and suggesting what options farmers have.
McCann gave two examples of how the changes could look in practice. In the first, ‘John’ is a widower who owns 200 acres valued at £2m. He has a poultry unit worth £1m and a farmhouse and buildings worth another £1m, giving total agricultural assets of £4m. If he died today, he would be expected to gain 100% relief on all of that. If he dies after April 2026, however, the first £1m will attract 100% relief and the remaining £3m will attract 50% relief. Half of that £3m is therefore tax-free, and the remaining £1.5m is subject to IHT. John can use his late wife’s £325,000 tax-free allowance as well as his own, leaving an IHT bill of £340,000 to pay.
In the second example, ‘Tom and Kate’ are a married couple with a diversified farm business worth £6m. Currently they are free of IHT obligations, but post-April 2026, if Tom dies first he could pass £1m of assets to his children, which would attract 100% relief. The balance passes to his wife, who then owns £5m of assets. On her death she, too, is entitled to 100% relief on the first £1m. That leaves £4m at 50% relief, and taking into account the couple’s combined £650,000 of tax-free allowances, it leaves an IHT bill of £540,000.
What rules are there around gifting your cash or assets before you die?
Currently you can’t give away an inheritance for free unless you live at least another seven years beyond the gift, or else it will be subject to IHT. If you have young children, there’s the option of doing a Deed of Variation that diverts money into a trust, to be given to them at an agreed later date. McCann also expects to see more people taking out a whole-life insurance policy that pays out on an individual’s death and gives the next generation a tax-free lump sum of money to help pay any tax that’s ultimately due. “We think we’ll see more people giving away assets during their lifetime,” he says. More people might also take the option of essentially insuring the seven-year period after giving away a gift, which is to say gifting cash or assets but then taking out a seven-year life insurance policy to ensure there’s a payout in the event of unexpected death and to help pay for IHT liabilities.
What’s changing on pensions?
From April 2027 pension death benefits will be included in a person’s estate for IHT. That applies for any beneficiary except if the estate is left to a spouse, in which case it’s still exempt without limit. While that might all seem like it makes pensions less attractive, McCann argues that as the government still offers tax breaks to incentivise pension savings, it’s still well worth putting money aside that way. While there will still be no income tax for your beneficiaries if you die before the age of 75, post age 75, the family will need to pay income tax on any money taken out of your pension. As that could be on an already IHT-taxed fund, it could end up being a heavy liability, meaning families may look to stagger pension withdrawals over a period of years. “It’s a big change, and we are hoping government will revisit it,” McCann stresses. One way of reducing the tax burden involves giving away regular surplus income through a relief called Gifts Out of Normal Expenditure, and individuals may wish to explore this as an option.
Should farmers be making a will?
Definitely, says McCann. “[The changes] will encourage people to look at their family situations, partnership agreements etc, to unpick who owns what,” he adds. “Wills are very important, as are powers of attorney. They are not just for old people.”
I’m still confused. What should I do?
Both Ford and McCann strongly recommend that poultry producers take professional advice on their tax and inheritance affairs.