Private Client Partner, Fraser Scott, explains why farmers are facing a harsh new reality after tax changes in The Scotsman today. Read the full article below, republished by kind permission of The Scotsman.

It’s harvest time for Scotland’s farmers, but it’s the UK Government which is beginning to reap rewards – from seeds sown in the 2024 Autumn Budget Statement. When the Chancellor announced reforms to Inheritance Tax (IHT) last October, the message was that farmers should pay more tax on death. This was not unexpected. Anyone reading the room would have realised the question was not if more taxation was coming but instead how much farmers would have to pay.

The news of the restrictions being applied to Agricultural and Business Property Relief (APR and BPR) moved us from a world where few farms paid any tax, meaning that passing farms from generation to generation was, so far as IHT was concerned, relatively easy, to a new reality where many more farms will pay some tax. While that might be minimal for some estates, for others it could be catastrophic and will render the farms unviable.

Currently, there is no cap on the level of APR and BPR, at 100 per cent, providing the farm satisfies the relevant test. The result is that, typically, the entire working farm would be exempt from IHT on death, meaning the business can be inherited without an IHT liability. However, from 6 April 2026, a cap of £1 million applies and anything over that limit will only qualify for 50 per cent relief. Therefore, if the value of the farm exceeds £1m, the qualifying balance will be subject to IHT at 20 per cent.

Let us put that in context. If you own a working farm valued at £10m and you die today, the IHT liability would be £nil. However, if you die on 6 April 2026, the IHT liability could be £1.8m. Given that the majority of the farm’s assets are likely to be illiquid, not only is the tax significant, it will likely cause problems for beneficiaries. In other industries, a tax charge could perhaps be more easily absorbed; but farming is an industry where, generally, asset values are high, liquidity low, and return on capital small. The consequence is that farms are less capable of releasing cash or absorbing the cost of borrowing.

The most effective antidote to IHT is to own less of the farm. Lifetime gifting enables you to divest yourself of value that would otherwise be taxable, providing it is done so sufficiently far in advance of death. Of course, this was also considered by the Chancellor, and, from April 2026, there are strict limits on how much can be given away within certain timeframes without incurring an IHT charge. However, the important thing is that it can be done.

Before the new rules come into force, there is an opportunity to accelerate succession plans and reduce the risk of a tax charge arising. There are several mechanisms that can be employed to help transfer value to the next generation in a tax-efficient way now, or on death, such as gifting part or all the business now, making use of spousal allowances, and/or the use of trusts.

Some obstacles are other potential tax charges (such as Capital Gains Tax, where, if assets were retained until death, there would be a ‘free uplift’), the ability and maturity of the intended beneficiary (are they ready?) and the two-year holding requirement for qualifying assets. Therefore, it is essential to understand the wider implications of giving assets away, and specialist advice should be sought at the earliest opportunity to ensure risks are mitigated as much as possible.

Murray Beith Murray LLP, Private Client Solicitors

Partner, Fraser Scott specialises in private client work, advising individuals and their families on a broad range of matters including wills, powers of attorney, succession, tax planning with expertise in family protection trusts,

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