Ad: Selling to developers – how to mitigate inheritance tax on new wealth

Significant changes to Agricultural Relief (AR) (also known as Agricultural Property Relief or APR) are set to take effect from 6 April 2026. These reforms will cap the 100% relief on qualifying agricultural assets at £1m, with any value above this threshold receiving only 50% relief.

The threat of increased inheritance tax (IHT) means some farmers are now engaging with developers to discuss the sale of their land. How can you sell development land and reduce your IHT liability? You use a trust.

The best way to demonstrate the benefits of using a trust is by example.

Farmer A owns 130 acres of qualifying farmland worth £1,950,000 and has been approached about selling his land for development. The developer will purchase the land if planning permission is granted.

If farmer A sells the land, the cash proceeds will be, for the purposes of this example, £50m (after the deduction of relevant taxes and expenses).

If these funds remain in farmer A’s estate until death, £50m will be subject to IHT at 40% resulting in an IHT liability of £20,000,000 (assuming no other reliefs are available).

If famer A now carries out estate planning, any funds he transfers into trust will incur a 20% entry charge on the value above £325,000 and any transfer into trust or outright gift will require him to survive seven years for it to escape a further IHT charge.

However, if farmer A transfers half the qualifying land into a trust for his children, before the value of the land is increased by planning permission or other factors, the land transferred into trust will be worth £975,000 (under the new £1m IHT threshold) and avoid an IHT entry charge. Farmer A, as trustee of the trust, can continue with the sale once planning permission is granted.

When the land is sold, half of the sale proceeds are due to the trust meaning the value which is outside farmer A’s estate and not subject to IHT on his death is £25m. The remaining sale proceeds belong to farmer A and on his death will be subject to IHT at 40%. The overall IHT saving is therefore £10,000,000 (assuming no other reliefs are available).

Although there may be an additional IHT charge if farmer A fails to survive the transfer into trust by seven years, it will be minimal when compared to the IHT saving achieved.

By proactively establishing trusts before agreements are made, farmers and other agricultural landowners have a unique opportunity to safeguard their estates against increased IHT liabilities. If you are in this situation, it would be worth taking estate planning advice as soon as possible to consider all available options. The expert team at Thomson Snell & Passmore has helped generations of farming families to pass on their wealth including setting up trusts in these circumstances.