Selling or transferring agricultural land and farms can have significant tax implications, particularly concerning Capital Gains Tax (CGT) and Inheritance Tax (IHT).
Following increased CGT rates and major IHT reforms announced in the 2024 Autumn Budget, it is important to consider the current rates and the implication of future increases.
Capital Gains Tax
CGT is charged on the profit made from selling an asset, including agricultural land and farms – the difference between the sale price and the original purchase price, minus allowable expenses such as legal fees and improvement costs.
The rates for chargeable assets were brought in line with residential property from October 30 2024, increasing to 18% for basic rate taxpayers and 24% for higher rate taxpayers and each individual has an annual exempt amount of £3,000.
Business Asset Disposal Relief can reduce the CGT rate to 14% on qualifying business assets, including farms, up to a lifetime limit of £1 million.
This is set to be raised to 18% in 2026/27.
Looking ahead to the upcoming autumn Budget, on November 26 2025, there has been some speculation that CGT may be targeted, with suggestions that it could be once again aligned with the marginal rate of income tax.
Inheritance Tax
Inheritance Tax (IHT) saw one of the biggest changes following the autumn Budget 2024 and draft legislation was published in July.
IHT of 40% applies to estates passed on after death on the value above the nil-rate band of £325,000, rising to £500,000 if you leave your home to your children or grandchildren and your total estate is valued under £2 million.
Two reliefs are potentially available to those selling agricultural land and farms – Agricultural Property Relief (APR) and Business Property Relief (BPR). From 6 April 2026 the combined relief cap for 100% APR and BPR will be £1 million.
APR can reduce the IHT liability on agricultural land and buildings. It applies to agricultural property occupied for agricultural purposes.
This includes land, buildings, and farmhouses proportionate in size and character to the agricultural land.
It can provide up to 100% relief on the agricultural value of the property up to £1 million (from April) with any amount above this receiving 50% relief.
To qualify, the property/land must have been owned and used for agricultural purposes for at least two years (if occupied by the owner) or seven years (if occupied by someone else).
BPR can also reduce IHT on business assets, including farms.
To be eligible the farm must be a working business, not just an investment. BPR applies to both the land and buildings used in the business.
BPR can provide 100% relief on the value of the business property up to £1 million if it has been owned for at least two years before the transfer with any amount above this receiving 50% relief.
In some cases, it is possible to combine APR and BPR but the draft legislation confirms the combined relief is restricted to £1 million. Unlike the IHT nil-rate band, any unused APR/BPR allowance will not be transferable between spouses or civil partners.
In light of the proposed changes, effective succession planning has never been more crucial.
Our recent Family Business Survey highlighted that 34% plan to pass on the farm to the next generation, although more than half had not discussed their plans.
Having proactive succession conversations earlier can ensure a smooth transition of your agricultural land and business assets and help maximise tax reliefs and secure the future of your family business. The earlier planning is undertaken, the greater the chance of success.
