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By Elliot Taylor, Partner & Farm Business Consultant.
Inheritance Tax (IHT) is never an easy topic to bring up around the farmhouse table, but it’s one that no serious farming business can afford to ignore. For many family farms, Agricultural Property Relief (APR) and Business Property Relief (BPR) have been the safety nets that allow assets to pass between generations without forcing a sale of land or livestock to pay the tax bill.
However, the landscape is changing. In her October 2024 Budget, Chancellor Rachel Reeves announced reforms that will reshape how these reliefs work from April 2026, including a new £1 million per-person cap on APR and BPR. Since then, think tanks such as CenTax (the Centre for Economic and Taxation Studies) are pushing more radical ideas, such as the Minimum Share Rule (MSR).
Although the CenTax proposal isn’t government policy, it’s gaining attention in Westminster and could influence the next stage of reform. It’s worth understanding how it might affect farming and rural estates.
CenTax’s starting point is that the current IHT system is too complex and open to misuse. Under existing rules, 100% APR or BPR can remove the entire value of qualifying assets from IHT. While that’s essential for genuine working farms, critics argue it’s also being used by passive investors and non-farming landowners, allowing them to benefit from reliefs designed for active businesses.
The think tank’s view is that the system has drifted from supporting enterprise to rewarding ownership. Their proposal aims to tighten the rules, ensuring reliefs go to those genuinely engaged in farming or running a rural business, not those holding assets at arm’s length.
At the heart of the CenTax proposal is a simple idea, that only estates where a majority of assets are used in farming or business should qualify for full relief.
How it would work:
Tiered relief bands
CenTax claims this approach would protect smaller, genuine farm businesses while raising additional revenue from large, diversified, or investment-driven estates, potentially doubling IHT receipts from rural estates by 2030.
For most family-run farms, the changes might not seem immediately threatening. If your assets are mainly land, stock, and machinery, and you’re actively trading, your business will probably meet the 60% test.
However, the detail could prove a problem for some businesses. Farms that have diversified into tourism, solar, or property ventures may find that a growing share of their estate no longer qualifies. Similarly, families with complex ownership structures, or mixed estates containing investment property or off-farm assets, could be caught out too.
The result could be stark. Falling just below the 60% threshold would mean losing all APR and BPR, a “cliff-edge” effect that could force asset sales or restructuring to cover a sudden IHT bill.
One of the groups most exposed under the CenTax model would be landowners who let land under Farm Business Tenancies (FBTs).
Currently, land let under an FBT usually qualifies for 100% APR, provided it’s genuinely in agricultural use and the tenancy meets the relevant time conditions. This has allowed many family landowners to pass farms down without major tax costs.
However, under CenTax’s Minimum Share Rule, relief would depend on the overall balance of the estate. If less than 60% of total assets are in qualifying agricultural or business use, the entire estate would lose relief, even if individual FBT land technically meets APR criteria.
Those with diversified or investment heavy portfolios, for example, a mix of let farmland, property, and financial investments, could easily fall below the line. As CenTax wants reliefs to favour active business involvement, passive landlords who simply let land under long-term FBTs may be treated less favourably than those engaged in contract farming, share farming, or joint ventures.
From a farm business consultant’s perspective, there are several key issues to watch:
There’s no doubt that reform is coming, and in principle, most would agree that reliefs should reward genuine business activity. But in practice, the CenTax approach may be too blunt. A more gradual taper, or clearer recognition of diversified rural enterprises, could achieve fairness without penalising progressive farms.
While CenTax’s proposal isn’t law, the direction of travel is clear with IHT reform. Reliefs are tightening, scrutiny is increasing, and future policy could only reward active farming over passive ownership.
Farmers and landowners should:
Whatever form future IHT reform takes, the message for farming families is clear that reliefs will become more targeted and conditional.
For genuine working farms, there’s no need to panic but there is every reason to prepare. Understanding your exposure now and keeping your business structure under review will be the best defence against whatever changes the next few years bring.
For tailored advice on how the proposed IHT changes could affect your farm, get in touch with the GFW Rural Team today.
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