Guide to Farm Succession Planning

Guide to farm succession planning

Succession planning is a crucial part of any long-term business strategy. But changes to Agricultural and Business Reliefs mean that Inheritance Tax (IHT) will impact more farming families than before. We look at the importance of succession planning when it comes to retirement and IHT.

Updated: 02.03.26

By Neil Marsden

We look at the importance of succession planning when it comes to retirement and IHT.

What is farm succession planning?

Succession planning isn’t a declaration of retirement. It’s simply about putting a long-term strategy in place to ensure that the business continues to operate when you do decide to retire.

When you start to think about future planning, it’s important to distinguish between ownership of the farm (control over the deeds) and management (control over operations). With this in mind, there are three main areas to consider:

Income – who receives and benefits from any profits.

Control – who will be responsible for managing the farm and making final decisions over crops, livestock, or investments.

Assets – who will own physical assets such as machinery and buildings.

Why is farm succession planning so critical right now?

All businesses should prepare for the future. But, with recent changes to tax relief thresholds, long-standing family farms risk a heavy tax burden if plans aren’t put in place. Without a robust financial strategy, assets may be sold to cover IHT.

Under the new IHT rules, which come into force from 6th April 2026, Agricultural Relief (AR) and Business Relief (BR) will be capped. Any assets above these thresholds can be subject to IHT at 20%.

Understanding Agricultural Relief (AR)

Agricultural Relief (AR) lets you pass on some agricultural property without attracting Inheritance Tax (IHT). This relief applies to certain types of property used for farming and agricultural production. This can include:

Agricultural land or pasture used to grow crops or raise animals

Stud farms for breeding and rearing horses

Trees harvested and planted at least every ten years

Farm buildings, farm cottages and farmhouses

There are also rules about ownership of farm cottages and houses to qualify for AR. Before they are transferred, they must have been owned and used for agricultural purposes for at least two years by the owner, a company controlled by the owner, or the owner’s spouse or civil partner.

If the owner does not live in the property and has rented it out instead, they must have owned it for at least seven years before it qualifies for AR.

Agricultural property does not include:

Farm equipment and machinery

Derelict buildings

Harvested crops or livestock

Current AR rules and April 2026 changes

Currently, anything that falls within the category of ‘agricultural property’ and has been owned and used for agricultural purposes for at least two years, is IHT-exempt. This exemption means that family farms can generally be passed down through the generations with minimal tax payments. This will change from 6th April 2026.

As of April 2026, AR will be capped at £2.5million. This tax-free allowance can also be transferred to a spouse or civil partner. For couples, it means they can pass on up to £5 million of agricultural assets tax-free to their beneficiaries. You can find detailed AR guidance at GOV.UK, Agricultural Relief for Inheritance Tax.

The 7-year rule

The 7-year rule means that if you live for at least seven years after giving someone a monetary gift (that does not fall within the category of ‘agricultural property’), the gift becomes IHT-exempt. Before the seven-year period ends, the gift is known as a ‘potentially exempt transfer’, because it may be taxed.

If you pass away within seven years of giving the gift, IHT will be due, but the amount will depend on how much time has passed between the gift and dying. This sliding scale is known as ‘taper relief’. You can find detailed and technical guidance at GOV.UK, how IHT works.

Remember that gifts which become chargeable (because the donor dies within seven years) are assessed against the available nil rate band first. If the total value of chargeable gifts plus the estate does not exceed the current nil rate band of £325,000, no inheritance tax will be due on those gifts. Only the portion exceeding the nil rate band will then be subject to taper relief and potentially taxed. If there were other assets reliant on the nil rate band still in the estate, these would be taxed at the normal rate (typically 40%) rather than the 0%. So, the effective tax on gifts below the nil rate band in these circumstances is 40% throughout the 7-year period.

How life insurance can help cover IHT

If you’re concerned about covering the cost of IHT, you could consider a life insurance policy written in trust. Policies would pay out a tax-free lump sum on death, which the beneficiaries can use to pay any IHT liability due.

Understanding risks to the family farm

Few of us like to focus on what could go wrong, but as with any business, there are risks. For family-run businesses in particular, those risks can be amplified.

Having a farm succession plan provides continuity. Without it, there’s likely to be uncertainty about how the business will be run and by whom. This can ultimately put the farm at financial risk while these issues are being resolved.

Any plan you put together should consider each key risk factor and clearly set out a solution:

Death – passing away without a will (intestate) can split up a farm in ways that make it unviable. Drawing up a will and succession plan provides clarity and direction.

Disability – succession plans should also consider what might happen if farm owners become injured and are unable to work.

Divorce – if a relationship breaks down and couples decide to go their separate ways, this could force the sale of assets to settle claims.

Debt – consider what your business owes and how financial obligations will be met.

Disagreement – succession planning helps minimise future conflict and reduce the risk of breaking up a family business.

A 5-step guide to creating your succession plan

Here are five actionable steps to help create your succession plan:

Start the conversation

The AHDB (Agriculture and Horticulture Development Board) strongly advises that any plan should start with open and honest conversations involving everyone. Even family members who are not directly involved in day-to-day activities should be consulted. This helps ensure all parties feel involved and heard. You can read the AHDB’s tips for a successful conversation on their website.

Audit your assets

Consider what assets the business owns and differentiate between agricultural assets, which qualify for AR, and "non-agricultural" assets. Bear in mind that when it comes to Inheritance Tax planning, you won’t be able to claim Business Relief on assets that you’ve claimed AR on.

Identify your successors

The right person or people for the job might not be the ones in your immediate family. Think about how the farm currently operates, who manages each aspect, and consider existing skills. Training up younger generations can take time, so remember to factor this in too.

As well as identifying key people, discuss long-term goals and how the business might achieve important milestones with the team currently in place. This can often highlight staffing gaps and help prioritise projects.

Plan for the retiring generation

If retirement is imminent, identify and discuss income streams that aren’t tied to farm profits. For example, this could include accessing pension funds or income from renting property.

Formalise the agreement

A succession plan should sit alongside any broader estate planning documents you have, including a will, trust arrangements, partnership agreements, and tenancies. It’s important that all the documents align to minimise the likelihood that the plans will be contested or superseded by other clauses.

Plan for the future today

Succession planning involves complex financial strategies, so it’s vital to seek professional tax advice. IHT can be especially tricky to navigate, but an expert can guide you through your options and help minimise the tax burden on those you leave behind.

While we don’t offer succession planning advice, we can work with tax advisers to take a holistic view of wealth management and financial planning advice, helping you make informed decisions about the future of the family farm.

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.