Are all farm buildings and farmhouses 100% exempt?

Not necessarily; to qualify for APR, farm buildings and farmhouses appropriate in size and nature, need to be used for agricultural purposes; ownership conditions also apply. Farm buildings used for other, diversified activities may qualify for BR rather than APR. However, APR and BR relief at 100% is only available up to a combined £2.5 million. It is important to note that the relief covers the agricultural value, which may not be the same as the actual value.

Can I rent out my land and still claim APR?

Yes, you can still claim APR as long as the land and property meet the ownership, occupation, and use requirements.

Do livestock and machinery count under agricultural relief?

No, livestock and machinery typically aren't eligible for APR, but they may qualify for Business Relief.

Farm inheritance tax rules for your estate and family farm

Restrictions on Agricultural Property Relief (APR) increase the risk of Inheritance Tax (IHT) exposure at an already difficult time. But careful planning can help minimise the tax burden to protect the next generation of farmers.

In this article, we outline APR and Business Relief (BR) thresholds and exemptions, and what families can do to secure the future of their estates.

The current state of farm inheritance tax in the UK

In 2025, Defra (The Department for Environment, Food & Rural Affairs) figures estimated that agriculture in England comprised a total farmed area of 8.9 million hectares, spread across 99,900 farm holdings. While the average farm is 79 hectares, nearly half are less than 20 hectares, suggesting that smaller, family-run holdings are the most common type of ownership.

But despite 69% of UK land being used for agriculture, extreme weather, rising costs, and falling prices, particularly for arable farmers, have made farming an increasingly difficult industry. Changes to IHT and how Agricultural Property Relief is applied have added another layer of difficulty.

The cumulative result is that more English farms are up for sale. In the first half of 2026, land agents Strutt & Parker recorded that 177 farms were put on the market; the highest number in any six months since 2007.

Although this could be seen as discouraging, family-owned farms can still benefit from significant tax relief to protect future generations.

How Agricultural Property Relief (APR) and Business Relief (BR) work

APR and BR are two types of relief that can be used to lower the amount of Inheritance Tax (IHT) that needs to be paid. These reliefs can be used alongside the spouse or civil partner exception and the basic tax-free allowance (the nil-rate band).

Agricultural Property Relief (APR)

APR is a relief applied to agricultural land and property. In most cases, qualifying assets that fall within the threshold receive 100% APR and are exempt from IHT; anything over the threshold receives 50% relief.

Not all assets that fit within the allowance get 100% APR; depending what the asset is, it could qualify at 50%.

To qualify for APR, land and property must be used for agricultural purposes and tests apply relating to how long you’ve owned and occupied it.

If the land is farmed in-hand, you will need to have owned it and occupied it for at least two years before it is eligible for APR. If the land is leased to a tenant, it must have been owned for at least seven years and occupied by someone else. In addition, agricultural use must continue throughout the relevant period. For a detailed list of other qualifying assets, go to GOV.UK, Agricultural Relief for Inheritance Tax.

Business Relief (BR)

BR is a relief on business assets. If you have assets that don’t qualify for APR, you may be able to claim Business Relief instead. For example, machinery doesn't qualify for APR, but it may qualify for BR. However, the rate and eligibility depend on how it is owned and used. A business that mainly holds investments generally does not qualify.

The threshold for APR and BR

APR and BR can be applied to qualifying assets up to a combined value of £2.5 million per person.

Any unused allowance on death can be passed to a surviving spouse or civil partner, so a couple’s joint allowance is £5 million. You would need to make a claim to transfer any unused allowance. Anything over that amount is eligible for 50% relief, reducing IHT to an effective rate of 20% on those assets (as the standard rate of IHT is 40%).

Eligible IHT on qualifying agricultural or business property can be paid over ten annual instalments, interest free (if paid on time).

The seven-year rule and lifetime gifting for farmers

The seven-year rule for farmers broadly refers to the length of ownership and the agricultural occupation test before an asset qualifies for APR. Specifically, if land or property is leased to a tenant, it must be owned for at least seven years before it qualifies for APR.

In addition, all individuals (not just farmers) can benefit from lifetime gifting. If someone gifts an asset (known as a potentially exempt transfer or PET) and lives for another seven years, that gift is exempt from IHT. Gifts to discretionary trusts can also be made - these are known as chargeable lifetime transfers and the tax charges are treated differently.

If the person dies within seven years, the gift can still be included in the deceased’s estate, which means IHT may apply. If this happens, the amount of IHT charged will depend on the period of time between when the gift was given, if the gift becomes chargeable for tax, and when the person passed away (this is known as Taper Relief).

Practical strategies for managing farm inheritance tax

IHT rules and available reliefs are complex, and you need to consider your assets as a whole to help minimise the tax burden on family members. To ensure the best use of your allowances, it’s important to speak to a professional tax adviser.

Strategies to consider include:

Early succession planning – gifting and transferring assets early can help reduce the value of your estate and lower the overall tax burden. For a more in-depth guide, take a look at our guide to farm succession planning.

Spousal asset balancing – making sure assets are balanced between married couples helps make the most of tax-free allowances. It is important to take advice on the best way to do this, as equalling the assets between you is not aways the most tax-efficient option.

Life insurance in trust – life insurance doesn’t reduce Inheritance Tax liability, but a policy can be used to cover the seven years after gifting where IHT would be owed if the gifter passed away during that period.

Protecting your farm’s future with insurance

Restrictions on APR and BR make early estate planning more important than ever, helping protect your family farm's future and reduce overall IHT exposure. However, even the best plans need a safety net, and insurance can help provide it.

While a whole of life insurance policy written in trust can be used to pay IHT liabilities, it’s also important to minimise your financial risks overall, so that you can hand over a thriving family business.

At Alan Boswell Group, we’ve been supporting farming families for decades. Our tailored farm insurance covers a range of assets, including livestock and any diversified activities you’ve invested in too. We can also offer safeguards against risks such as environmental liability.

FAQs

The value of investments and any income from them can go down as well as up and you might not get back the original amount invested. The past is not a guide to the future. The value of tax benefits depends on your individual circumstances. Tax laws can change.

Make an enquiry today

To find out more about how we can help protect your assets or to speak to an expert about wealth management and estate planning, give our specialist team a call.

Speak to us: 01603 967967

Farm inheritance tax rules for your estate and family farm

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The current state of farm inheritance tax in the UK