£11,000. That was the average sale price of arable land in 2024, based on Strutt & Parker’s Farmland Database (a detailed record of land sales dating back to 1996, which gives a valuable insight into the past, present and future of the UK farmland market). Their latest analysis showed that the average sale price of arable land per acre in the first half of 2024 was £11,000, which is close to record levels.
High arable land prices should be good news for farmers. But combined with the proposed introduction of Inheritance Tax (IHT) on agricultural assets over £1million, it’s likely to have an adverse effect on the next generation of farmers.
How will the new agricultural IHT rules affect farmers and Inheritance Tax planning?
Since 1984, farmers and agricultural land and business owners have been exempt from IHT, thanks to Agricultural Property Relief (for land and farm buildings) and Business Property Relief (for livestock, farm vehicles and machinery diversification assets like cottage lets or farm shops). And the ‘relief’ had no cap, meaning no inheritance tax to pay regardless of the land or asset value.
But, in October 2024, the government announced that from 2026, inheritance tax would be charged at 20% on agricultural assets worth more than £1m.
The new rules mean that estates will only get relief on IHT up to £1m, with up to £500,000 of additional relief. If a farm is jointly-owned by a couple, the relief doubles from £1.5m to £3m. But, with arable land prices rising, many multigenerational farms will still be pushed into the new inheritance tax bracket. And many farmers are concerned that their beneficiaries will be forced to sell land or assets to be able to afford the inheritance tax bill.
How ‘Whole of Life’ Insurance can help with Inheritance Tax Planning
If you’re a farmer and you’re worried about the implications of the new family farm tax for your family and the next generation of farmers, there is a way to help your beneficiaries fund this IHT bill – with Whole of Life Insurance.
The big idea…
A Whole of Life assurance policy, sometimes called Whole of Life cover, or Whole of Life Insurance is an insurance policy that pays out when you die, regardless of how old you are.
But, here’s the important thing. Whole of Life policies can be written in trust. Which means the payout to your beneficiaries falls outside of your estate and is exempt from Inheritance Tax. The ‘workaround’ is that you buy a Whole of Life policy to pre-emptively fund the IHT bill your beneficiaries will get when you die. Your beneficiaries receive a tax-free payout that they can use to pay the Inheritance Tax due on the farmland and assets they will inherit. Which ultimately means your family won’t be forced to sell land or assets to pay the IHT bill and keep your farm going.
What is a Whole of Life Insurance policy?
A Whole of Life policy does what it says on the tin; it’s a policy that’s set up for an individual’s lifetime. It’s different to a traditional Life Insurance policy which has a set term and expires at a certain age. A Whole of Life policy can also be taken out up to the day before your 89th birthday.
Whole of Life policies are open-ended and will pay out a guaranteed amount of money whenever you die. So, whereas traditional Life Insurance policies tend to be used to protect a specific debt or financial risk, a Whole of Life policy is perfect for passing on lump sums. These lump sums could be used to fund IHT bills that your family might not otherwise be able to afford.
So, what now?
If you’re a farmer and you’re concerned about the impact of the new family farm tax, ask us about Whole of Life Insurance and the family farm tax workaround.
Using a broker like Macbeth means you’ll also get the best possible price for your insurance, because we have access to the whole insurance market.
Want to protect your farm for future generations? Email or call Simon Claxton today.
Please note: Estate Planning is not regulated by the Financial Conduct Authority.
Subscribe to our newsletter to receive all our latest insights