Study reveals UK farmers have two thirds of their wealth tied up in their farm
On average UK farmers have two-thirds (66%) of their total wealth tied up in their land, equipment and livestock, new analysis from Rathbones, one of the UK’s leading wealth management firms reveals. For almost a third of farmers (30%) interviewed this rises to over three-quarters of their wealth.
The vast majority of farmers see their farm not only as their livelihood, but as their future pension which will provide the bulk of their income when they retire, meaning many will face a significant financial shock in a year’s time, when new inheritance tax rules come into effect in April 2026.
Rathbones study reveals nearly all of the farmers interviewed (96%) see their farm as their future pension and over half (52%) believe that they will rely on their farm to finance up to half of their cost-of-living expenditure once they retire. Around a third (32%) say it will provide between half and three-quarters of their retirement income and 16% believe they will be almost wholly reliant on their farm which will fund 75% or more of their living costs once retired.
At the moment farmers are almost entirely exempt from inheritance tax, as they can use a combination of Agricultural Property Relief and Business Property Relief to pass on their farmland and other business assets to children or grandchildren tax free. But this is set to change in April 2026, with single farm owners only able to pass on up to £1.5m of farmland and assets tax free, and those who jointly own a farm only able to pass on up to £3m tax free.
This increase in inheritance tax is a significant worry for farmers, as the Rathbones study reveals that 92% of those interviewed expect the next generation in their family to take over the farm and run it, once the current generation is ready to retire. More than nine in ten (93%) of those interviewed said that they think the next generation will be capable of successfully running the farm – but profit margins for many farms are already very tight and 30% of farms are already loss making. Profit margins are likely to be further affected if the next generation of farmers are saddled with additional taxes to pay.
Adam Brewer, investment director with Rathbones Group in Exeter, said: “It has been economically challenging for farmers in the south-west for some time. Even prior to the IHT change, many families have been forced to utilise their land differently by moving into higher margin sectors like caravan parks to subsidise their traditional farming operations.
“The latest tax change is likely to accelerate this struggle, threatening the continuing viability of smaller farms in the area.”
Rathbones highlights some key changes to Agricultural Property Relief and Business Property Relief potentially impacting farmers from April 2026:
- Rates of Relief: The full 100% relief continues for the first £1m of qualifying property, after which only 50% is allowed for the excess value. This means estates may incur significant IHT liabilities compared to the current situation where larger estates could claim full relief.
- Trusts: Both individuals and trusts will each have a separate £1m allowance for qualifying assets. Trusts created before 30 October 2024 will retain their own allowances, while post-Budget trusts will share a single £1m allowance.
- Lifetime Transfers: For gifts made after 30 October 2024, the new rules will apply if the donor dies after 6 April 2026. Gifts could potentially reduce IHT liability if the donor survives for seven years, allowing family members to pass on substantial assets tax-free.
- Instalment Payments: Estates can opt to pay IHT liabilities in equal annual instalments over 10 years interest-free, which provides some flexibility for affected families.