What changed during 2025?

In December 2025, the Government made a major change to its planned IHT reforms, which take effect in April 2026. The individual allowance for agricultural and business property was raised from £1 million to £2.5 million, so couples will be able to pass on up to £5 million in qualifying assets without paying the tax. For most farm types, this means a couple can transfer a farm of up to 400 acres tax-free, with the main exception being the dairy sector, where investment levels and working capital requirements are typically higher.

If an individual does not use their full IHT allowance for agricultural and business property, the unused portion can be transferred to their surviving spouse or civil partner. This change mirrors the treatment of the nil-rate band and residence nil-rate band, and the Chancellor said it “balanced the taxation of these valuable assets with the realities of family life”. The change has three main impacts:

1. It reduces complexity and gives farming families more flexibility over property ownership and wills, meaning they can pass assets down to the next generation at the point that is right for them and their family. However, the risk that reliefs and allowances could be amended in the future should be kept in mind.
2. It gives the older generation the option to retain more assets until death, meaning they can continue to draw money from the business to cover costs without breaching the retention of benefit rules.
3. The availability of the allowance is being backdated, meaning it will be available to widows and widowers where the first death was before 6 April 2026.

This addresses the unfairness created by the 2024 Budget, which disadvantaged farming businesses where one partner had already died, compared to those where both partners are still alive.

What’s the impact?

In 2024, the Government estimated that its reforms to agricultural and business property relief would generate an additional £495–£520 million in tax revenue per year once fully implemented. Although this is a substantial new cost for businesses, it would only increase the overall national tax take by 0.05%. Allowing the relief to be transferred to spouses or civil partners was projected to reduce the tax income by £70 million a year from 2027/28. It has been reported that increasing the individual allowance from £1 million to £2.5 million has reduced the tax take by a further £130 million, suggesting the policy will now raise £295–£300 million per annum from the estates of business owners. The Government now expects that in 2026/27, 1,100 estates will pay more IHT as a result of the reforms, down from the original estimate of 2,000. For estates claiming agricultural property relief, the number affected has dropped from 375 to 185.

These changes protect smaller family farms from IHT, but larger businesses still face major challenges. Because farming typically generates low returns on capital, many larger farms cannot cover their IHT bills from trading profits alone; in some cases, the tax due would consume most or all of their annual profits. Additionally, although there is a ten-year interest-free payment plan for agricultural and business IHT, the first payment must be made within six months of the owner’s death. This is not enough time for the estate’s executors to obtain valuations and sell part of the property to raise the required funds.

In our 2025 Farmland Market Spotlight report, we modelled the IHT implications for an arable and upland livestock farm in individual ownership if no planning is put in place (see that report for the full methodology). We have updated the models to use a couple’s reliefs and explore how the inheritor can fund the IHT liability from their post-tax income, as most are likely to wish to avoid selling land and shrinking the business. The median upland livestock farm is loss-making, so once the business value exceeds the available reliefs, there is no profit to fund the IHT liability, whilst the median arable farm makes a 1% return on capital employed. At this level of performance, over 70% of the post-tax profit from an 800-acre arable farm would be needed to fund the IHT liability for a decade (see Figure 6). And for bigger farms, the annual IHT payments exceed the annual profits by a large margin. On a 2,000-acre arable farm, the IHT payment would require 235% of the profit for a decade. For the inheritor of an incorporated business, paying the inheritance tax from personal post-tax income is just as challenging, as corporation tax and dividend tax would also need to be paid.

What can businesses do?

1. Develop a succession plan: Farmers and landowners must work with their professional advisers to calculate the future IHT liability for their specific circumstances and have honest conversations with family members about tax mitigation strategies. This might involve restructuring the business, obtaining life insurance, making gifts, and using trusts, partnerships or incorporated structures.
2. Improve the business’s performance: For a more profitable business, a smaller proportion of the profit will be required to fund the IHT liability. Incremental improvements will help; however, the challenge remains steep. For the 2,000-acre arable farm, doubling the return on capital employed to 2% would mean 124% of the profit over a decade would be required to pay the IHT liability, rather than 235%.

IMPROVING BUSINESS PERFORMANCE

Increase productivity

• Use precision and variable rate technologies to optimise input use
• Strive to reduce birthing intervals and finishing times
• Review livestock breeds and crop varieties to ensure maximum suitability with your system
• Benchmark performance and adapt

Control costs

• Scrutinise capital investment
• Share or lease equipment
• Contract out unprofitable operations
• Consider buying groups

Diversify income streams

• Add value to products
• Explore tourism opportunities
• Generate renewable energy

Improve marketing

• Consider grain pools
• Explore supply contract opportunities
• Secure supply chain premiums
• Market direct to customers

Improve financial management

• Understand and review costs of production
• Regularly review budgets and forecasts
• Maximise suitable grant funding
• Manage risks

Productivity unleashed: Key insights from the Farming Profitability Review

Productivity is the word on everyone’s lips, yet for many UK farmers, improving it remains an elusive goal. The Farming Profitability Review, published in December 2025 and led by Baroness Minette Batters, not only acknowledges the challenge with profitability — it puts it at the heart of its vision for a more resilient, competitive and sustainable agricultural sector. While the review focuses on England, the conclusions drawn are relevant to the industry across the UK.

The review’s starting point is blunt. Too many farms, especially those in the middle 50%, are stuck in a cycle of volatility; input costs rise, output prices fluctuate, and the margin for error shrinks — meaning even well-run businesses can find themselves in the red. In 2023/24, 30% of England’s farms made a loss, 24% in Wales and 27% in Scotland. The review’s analysis is clear: productivity is not just about producing more, but about using resources such as land, labour and capital more efficiently. Performance differences can be significant — for example, the AHDB’s Farmbench data for store cattle in 2024 reports an average cost of production for the bottom 25% of producers of £4.08/Kg, which is 92% higher than the £2.12/Kg achieved by the top 25%.

The 57 recommendations call for a new approach to knowledge exchange, centred on a Sustainable FARM Service that provides technical advice, benchmarking and innovation support in one place. This is not just another advisory body — it is recognition that fragmented advice is holding back progress, especially for smaller businesses. It aims to raise performance across the sector and help close the gap between the top performers and the rest.

The review also emphasises the need for better data and market intelligence — farmers cannot improve what they cannot measure. By improving market monitoring and integrating information on prices, costs and supply chains, farmers would gain access to real‑time benchmarking — enabling clearer comparisons, identifying inefficiencies, and making better‑informed investment and risk decisions.

But there are caveats. Productivity gains will not come from technology alone. The review is explicit: business skills matter. High-performing farms are more likely to set budgets, benchmark, and plan strategically. The review’s focus on skills, training and peer-to-peer learning is a reminder that people, not just machines, drive productivity.

There is also a warning, especially relevant for Scotland and Wales, as they begin their transitions to new sustainable agriculture schemes. Policy instability and frequent changes to schemes, funding and regulation undermine confidence and investment. The review’s call for a long-term, joined-up strategy is as much about creating the conditions for productivity as it is about specific interventions.

Clearly, some productivity-boosting actions rest within the farmer’s sphere of influence, while others depend on enabling action by Defra and other government departments. Defra’s full response is expected to be set out in the Farming Roadmap later this year. So far, it has been confirmed that planning rules will be relaxed to support food infrastructure by prioritising projects benefiting food production, animal welfare, and the environment. Meanwhile, a consultation is underway to improve fairness and data sharing in the combinable crops supply chain.

In summary, productivity underpins profitability, resilience and growth. Without action, farms will remain exposed to volatility, and the gap between top and lower performers will widen. Implementing the review’s recommendations: improved knowledge exchange, stronger data, better business skills and stable policy, would help create a more competitive and sustainable sector where profitability is achievable.

_{Read the articles within Spotlight: The Farmland Market below.}