A note on inheritance tax changes in farming: an analysis of Scottish farming
From April 2026 a proposed cap on inheritance tax (IHT) relief on the estate of the deceased will be imposed, where the first £1 million of combined agricultural and business property will receive 100% IHT relief. There are some reliefs on the nil-rate bands, but these will be specific to the farm and taxpayers associated with the farm. For simplicity we use the £1 million threshold as a proxy for a single farmer threshold and £2 million for a couple. Agricultural Property Relief is set at 50% of the 40% IHT rate which means that farmers pay 20% on taxable asset values over the threshold. Moreover, farmers will be given 10 years to pay the full amount owed.
This report examines the potential impacts in Scotland through analysing the unweighted Farm Business Survey to explore the magnitude of farm exposure to this change by a number of key factors such as type and size. Although this data set offers detailed information on farm assets and incomes, it is focused on commercial farming enterprises. The relief cap combines both agricultural and business property relief and it is not possible to account for other, non-farm, assets, that would create greater exposure to IHT. Hence this brief can only provide an indication of the potential impact of the IHT, where individual circumstances will affect the actual level of exposure. The second purpose is to identify key aspects, retirement and succession planning, to identify a route to managing exposure to this threshold.