From 6 April 2026, it is proposed that:
- The full 100% relief from IHT will be restricted to the first £1 million of combined agricultural and business property.
- Above this amount, landowners will pay IHT at a reduced rate of 20%, rather than the standard 40%. This tax can be paid in instalments over 10 years interest free.
This £1 million relief will apply on top of all the other spousal exemptions and nil-rate bands that individuals can access. This means that two people with farmland, depending on their circumstances, could pass on up to £3 million without any IHT liability arising.
As a result, the Howden Rural Team would urge you to take professional advice at the earliest possible opportunity and understand the potential solutions available that may help to soften the impact, and allow family assets to pass smoothly to the next generation.
Howden colleagues at SPF Private Clients ("SPF") have kindly outlined the following options that could be available:
- Lifetime gifts - there was confirmation in the budget that making lifetime transfers, or gifts, will still be possible. Whilst gifting family assets requires very careful planning to ensure that the gifts are not caught by the reservation of benefit rules, this does mean that assets could be passed to the next generation and, provided the donor survives for seven years following the gift, there will be no IHT liability.
- Life insurance - it may be possible to arrange a life insurance policy to protect the IHT exposure. Such policies could be arranged to last for a set period of time, and providing time to make gifts later in life, or on a whole of life basis, for assets that will be retained for life. A policy can also be changed to reflect changes in legislation or circumstances or cancelled at any time. Where gifts are to be made, it may also be possible to arrange a life insurance policy to protect the specific seven-year tax exposure following the gift.
- Trusts - once a life insurance policy is set up, it may be necessary for it to be settled in a trust, to ensure that the sum paid out following the passing of the life or lives insured can be accessed quickly, and to ensure that no tax arises on the sum when it is paid out. This is a straightforward process to undertake, and most insurance companies will provide their own trust deeds which can be used without charge. Alternatively, individuals may opt for their lawyer to draft a trust deed.
SPF have also provided two hypothetical case studies below to highlight some life insurance options that may be available:
Example 1: Protecting IHT on estates
David and Sally are both age 60. They expect to gift a significant proposition of their family business assets later in life to their two children. Their total estate including all agricultural property is valued at £5 million. This includes their main residence, which itself is valued at £1 million. Whilst David and Sally would wish to remain in their main residence for life. Until such time that they are in a position to gift assets to their children, they take out a term life insurance policy, lasting for 25 years, with the sum payable should they both pass away within the policy term.
They opt for a sum assured of £1 million, which will be sufficient to protect the 20% IHT exposure on agricultural assets valued at £5 million above any tax-free allowances. As such, this sum also helps to future-proof against asset value growth.
Having been offered standard non-smoker underwriting terms, the premium payable for the sum of £1 million will be £4,117 per annum, equivalent to 0.08% per annum of the current estate value.
Example 2: Protecting IHT on gifts
John, age 75, makes a gift of agricultural property valued at £5 million (above any available reliefs or allowances) on 6 April 2026 to his son, Henry. Importantly, once he has made this gift, John will not retain any benefit in the agricultural property that has been gifted.
As the gift value is above any reliefs or allowances, the gift will be exposed to a potential IHT liability of £1 million (20% of £5 million) for the first three years following the gift, with taper relief applying thereafter. The potential IHT liability will reduce to zero seven years after the gift was made.
John takes out a life insurance policy, lasting for 7 years, with a sum assured of £1 million, reducing in line with taper relief.
Having been offered standard non-smoker underwriting terms, the premium payable for the sum of £1 million, reducing with taper relief, is as follows:
| Year 1 | £1,000,000 | £10,670 |
| Year 2 | £1,000,000 | £10,670 |
| Year 3 | £1,000,000 | £10,670 |
| Year 4 | £800,000 | £8,692 |
| Year 5 | £600,000 | £6,695 |
| Year 6 | £400,000 | £4,677 |
| Year 7 | £200,000 | £2,448 |
| Total premiums payable over 7 years | £54,521 | |
| Total premiums as a % of £5 million gift | 1.1% | |
If you would like any advice in this area,
please call the Howden Rural Team on 0330 165 2719
Advice must always be taken before implementing a life insurance solution. The premiums available for life insurance are subject to underwriting and will be based on individual circumstances. Tax advice may also be required. Clients should not take or refrain from any action based on the contents of this article.
Howden UK Brokers Limited is authorised and regulated by the Financial Conduct Authority No. 307663. Registered Office: One Creechurch Place, London, EC3A 5AF. Registered in England and Wales under company registration number 02831010. Calls may be monitored and recorded for quality assurance purposes.
SPF Private Clients Limited is authorised and regulated by the Financial Conduct Authority (FCA). The FCA does not regulate taxation advice. www.spf.co.uk Registered Office: 33 Gracechurch Street, London, EC3V 0BT. Registered in England No. 3680970.
This post is funded by Howden Rural
