Inheritance tax is a growing concern for many UK farmers and farming families. Family farms are often valuable because of land, property, machinery, livestock and business assets, but many farms do not hold large amounts of spare cash.
This can create a serious problem. If inheritance tax becomes payable, the next generation may need to find money quickly. Without planning, this could put pressure on the family to sell land, take on debt, or disrupt the farm’s future.
Life insurance can help farmers with inheritance tax planning by providing a lump-sum cash benefit when it is needed most. When arranged correctly and written in trust, life insurance can help beneficiaries pay an inheritance tax bill without automatically forcing the sale of farmland or key business assets.
This article explains why inheritance tax is a concern for farmers, how Agricultural Property Relief and Business Property Relief work, what protection options are available, and why life insurance can be useful as part of a wider farm succession plan.
Why are farmers worried about inheritance tax?
Farmers are often described as asset-rich but cash-poor. A farm may be worth a significant amount on paper because of the value of land, buildings, machinery and business assets, but that does not mean the family has cash available to pay an inheritance tax bill.
This matters because inheritance tax may need to be paid before beneficiaries can fully access or restructure the estate.
For farming families, this can create difficult choices, such as:
- Selling farmland
- Selling machinery or livestock
- Borrowing against the farm
- Reducing investment in the business
- Delaying succession plans
- Creating tension between farming and non-farming family members
- Putting the long-term future of the farm at risk
For many farmers, inheritance tax planning is not simply about reducing tax. It is about protecting the farm, keeping it operational and making sure the next generation can continue farming.
What is inheritance tax?
Inheritance tax, often shortened to IHT, is a tax that may be charged on someone’s estate when they die.
An estate can include:
- Land
- Property
- Savings
- Investments
- Machinery
- Livestock
- Business interests
- Personal possessions
- Life insurance policies not written in trust
Inheritance tax is usually charged at 40% on the value of an estate above the available tax-free thresholds. However, farming estates may benefit from Agricultural Property Relief and Business Property Relief, depending on the assets involved and their eligibility.
What is Agricultural Property Relief?
Agricultural Property Relief, or APR, can reduce the value of qualifying agricultural property for inheritance tax purposes.
For farmers, this may include agricultural land and certain buildings used for farming. However, APR does not automatically cover every asset connected to a farm. The exact position depends on how the land and property are owned, occupied and used.
APR can be very valuable, but farmers should not assume that every part of the farm will qualify for full relief.
What is Business Property Relief?
Business Property Relief, or BPR, can reduce the inheritance tax value of qualifying business assets.
For farms, BPR may be relevant where the farming business includes trading assets that do not fall fully under Agricultural Property Relief. This can be especially important for diversified farms.
However, BPR can be complex. Some diversified activities may qualify, while others may be treated more like investment activities. This distinction can make a significant difference to inheritance tax planning.
What changed for farmers from 6 April 2026?
From 6 April 2026, the inheritance tax treatment of Agricultural Property Relief and Business Property Relief changed.
A combined £2.5 million allowance applies to the value of qualifying agricultural and business property that can receive 100% relief. Qualifying assets above this allowance receive 50% relief.
This means that some qualifying farm and business assets above the allowance may effectively be exposed to inheritance tax at 20%.
Unused allowance can be transferred to a surviving spouse or civil partner, depending on circumstances. This means married couples and civil partners may be able to pass on more qualifying agricultural and business property with 100% relief than a single individual.
These changes mean many farming families should review their estate planning, even if they previously expected Agricultural Property Relief or Business Property Relief to remove most or all of the inheritance tax issue.
Why the April 2026 changes matter for family farms
The April 2026 changes matter because many family farms are worth more than the available reliefs.
A farm may include:
- Agricultural land
- Farmhouses
- Farm cottages
- Barns and outbuildings
- Livestock
- Machinery
- Diversified business assets
- Renewable energy projects
- Farm shops
- Holiday lets
- Commercial lets
- Development land
- Investment property
Not all of these assets may receive the same inheritance tax treatment. Some may qualify for APR, some for BPR, some for partial relief, and some may not qualify.
That is why farmers should review the farm’s full asset position and not rely on assumptions.
Can life insurance help farmers pay inheritance tax?
Yes. Life insurance can help farmers pay inheritance tax by providing a lump-sum cash payment after death.
The policy does not remove the inheritance tax liability. Instead, it can provide money to help the beneficiaries pay the tax bill.
This can be especially useful when the farm is valuable, but the family does not have sufficient cash.
For example, a life insurance payout could help the family:
- Pay an inheritance tax bill
- Avoid a rushed sale of farmland
- Keep machinery and livestock in the business
- Protect the working farm
- Support the next generation
- Provide funds for non-farming family members
- Reduce pressure on farm cash flow
Why should farmers consider writing life insurance in trust?
For inheritance tax planning, life insurance is often written in trust.
If a life insurance policy is not written in trust, the payout may form part of the estate. This could increase the estate’s value and potentially raise the inheritance tax bill.
If the policy is correctly written in trust, the payout is usually kept outside the estate and can be paid to the chosen beneficiaries or trustees.
This can help because:
- The payout may not be included in the estate for inheritance tax purposes
- The money may be available more quickly
- The funds can help pay the inheritance tax bill
- The policyholder can choose who should benefit
- The family may have more control at a difficult time
Trusts need to be set up correctly, so farmers should take specialist advice before placing a policy in trust.
What life insurance options are available to farmers?
Farmers may have several protection options depending on the farm, the family, the succession plan and the expected inheritance tax liability.
Whole of life insurance for farmers
Whole of life insurance is one of the most common protection options for inheritance tax planning.
It is designed to last for the rest of the insured person’s life, provided the premiums continue to be paid. When the insured person dies, the policy pays out.
For farmers, whole-of-life insurance can be useful when an inheritance tax bill is expected upon death.
Why farmers may consider whole of life cover
Whole of life insurance may help farmers who:
- Expect an inheritance tax bill in the future
- Want to protect farmland from forced sale
- Need a cover that does not expire after a fixed term
- Want to provide cash for the next generation
- Have a farm estate above available reliefs and allowances
- Want long-term certainty, provided premiums are maintained
The main consideration is affordability. Whole-of-life cover is usually more expensive than term insurance because it is intended to pay out whenever death occurs.
Joint life second death cover for farming couples
For married couples and civil partners, inheritance tax often becomes a bigger issue on the second death because transfers between spouses and civil partners are usually inheritance tax-free.
A joint life second death policy pays out when the second person dies.
This can be useful where the inheritance tax bill is expected to arise after both partners have died and the farm passes to children or other beneficiaries.
Why joint life second death cover may suit farmers
This type of cover may be useful where:
- The farm is owned by a married couple or civil partners
- The inheritance tax issue is expected on the second death
- The family wants one policy to support succession planning
- The next generation will inherit the farm
- The family wants to provide cash to help meet an expected tax bill
Term life insurance for farmers
Term life insurance provides cover for a fixed period, such as 10, 20 or 30 years.
It pays out if the insured person dies during the policy term. If they survive the term, the policy ends, and no payout is made.
Term life insurance may be useful where a farmer has a temporary inheritance tax risk.
For example, if land or assets have been gifted to the next generation, inheritance tax may still be relevant if the person making the gift dies within 7 years. Term life insurance can help cover this risk.
Why farmers may consider term life cover
Term life insurance may help farmers who:
- Have gifted land or assets
- Want cover during the 7-year gift period
- Need a lower-cost alternative to whole of life cover
- Have a specific loan or liability to protect
- Want temporary protection while succession plans are completed
Gift inter vivos insurance for farm succession
Gift inter vivos insurance is designed to cover the potential inheritance tax liability on a gift if the person making the gift dies within 7 years.
This can be relevant where farmers gift land, property or business assets to children as part of succession planning.
The level of cover may decrease over time, depending on the policy’s structure and potential inheritance tax exposure.
Why gift cover can matter for farmers
Many farmers want to pass assets to the next generation during their lifetime. This can be helpful for succession planning, but it needs careful advice.
Gift inter vivos cover can help protect the family if the person making the gift dies before the 7-year period has passed.
Key person protection for farms
Inheritance tax is not the only financial risk facing a farming business.
Many farms rely heavily on one or two key people. This could be the farm owner, a family member, a farm manager or someone responsible for daily operations.
Key person protection can provide a lump sum to the business if a key person dies or becomes seriously ill, depending on the policy.
This money can help the farm:
- Replace lost expertise
- Cover temporary labour costs
- Protect cash flow
- Keep trading
- Repay borrowing
- Manage disruption during a difficult period
Partnership and shareholder protection for farming businesses
Many farms are run as partnerships, family companies or multi-generational businesses.
If one partner or shareholder dies, their share of the business may pass to their family. This can create practical and financial challenges if the remaining owners want to continue running the farm.
Partnership or shareholder protection can provide funds to help the remaining owners purchase the deceased owner’s share from the deceased owner’s beneficiaries.
This can help:
- Keep control of the farm with active farming family members
- Provide fair value to the deceased owner’s family
- Avoid disputes
- Protect business continuity
- Support succession planning
Family income benefit for farming families
Family income benefit is a type of life insurance that pays a regular income rather than a single lump sum.
It is not usually the main option for inheritance tax planning, but it can support the wider family protection plan.
It may help provide income for a surviving spouse, children or dependants if a key family member dies.
Relevant life cover for incorporated farms
Relevant life cover is a life insurance policy that an employer can set up for an employee or director.
Some incorporated farming businesses may consider relevant life cover for eligible individuals. It can be a tax-efficient way to provide death-in-service-style benefits, although it is not typically designed to cover inheritance tax.
Farmers should seek advice to check whether relevant life cover is suitable for their business structure.
Key inheritance tax planning areas farmers should review
- Farm ownership structure
The way the farm is owned can affect inheritance tax and succession planning.
Farmers should review:
- Who owns the land
- Who owns the farmhouse
- Who owns cottages and outbuildings
- Who owns machinery and livestock
- Whether assets are held personally, in partnership, in a company or in trust
- Whether legal ownership matches the family succession plan
- Which assets qualify for APR or BPR
Not every farm asset will automatically qualify for full inheritance tax relief.
Farmers should review whether assets are likely to qualify for Agricultural Property Relief, Business Property Relief, partial relief or no relief.
This is especially important for diversified farms.
- Diversified farm income
Many farms now include diversified income streams, such as:
- Holiday lets
- Farm shops
- Renewable energy
- Storage units
- Commercial lets
- Events
- Development land
- Equestrian activity
- Glamping or tourism
These assets may not all receive the same inheritance tax treatment. Specialist advice is important.
- Succession planning
Farm succession can be emotionally and financially complex.
Farmers should consider:
- Who will take over the farm?
- Are all children involved in the business?
- Should farming and non-farming children inherit equally?
- Should one child inherit the farm while others receive cash?
- Is the next generation ready to run the business?
- Do wills and partnership agreements match the plan?
Life insurance can sometimes help equalise inheritance between farming and non-farming children.
- Liquidity
Liquidity means having cash available when needed.
Inheritance tax can create a liquidity problem for farmers because the farm may be valuable but difficult to convert into cash quickly.
Life insurance can help provide liquidity without forcing an immediate sale of land or assets.
- Affordability
Protection planning only works if premiums remain affordable.
Farm incomes can fluctuate due to weather, input costs, disease, subsidies, commodity prices and wider economic conditions.
Farmers should choose a realistic level of cover that can be maintained over the long term.
- Health and medical history
The cost and availability of life insurance depend on factors such as:
- Age
- Health
- Smoking status
- Medical history
- Occupation
- Lifestyle
- Amount of cover
- Type of policy
Farmers with medical conditions may still be able to get cover, but specialist advice can help identify suitable insurers.
- Wills, trusts and agreements
Life insurance should fit alongside the wider estate plan.
Farmers should review:
- Wills
- Trusts
- Partnership agreements
- Shareholder agreements
- Lasting powers of attorney
- Business loans
- Existing life insurance
- Pension nominations
- Ownership records
A mismatch between documents can cause delays, disputes or unexpected tax consequences.
Example: how life insurance could help protect a family farm
A farming couple owns a family farm that they want to pass to their children. One child works full-time on the farm, while another child has a separate career outside farming.
The farm has significant land and property value, but limited cash reserves.
After reviewing their estate, the couple realised that inheritance tax could create a cash problem for the next generation. They explore a joint life, second-death policy written in trust.
The policy is designed to pay out when the second parent dies. The payout could help the family meet the inheritance tax bill without immediately selling land.
This gives the farming child more chance of keeping the farm intact, while also helping the family plan fairly for non-farming children.
This is only an example. The right solution depends on individual circumstances.
Why life insurance can be a good option for farmers
Life insurance can be a good option for farmers because it provides cash when the estate may be tied up in land, buildings, and business assets.
The main benefits include:
- Helping pay inheritance tax
- Reducing the risk of forced land sales
- Protecting the working farm
- Supporting farm succession
- Providing cash for non-farming family members
- Helping repay farm borrowing
- Giving the next generation time and flexibility
- Preserving family control of the farm
For many farming families, life insurance is not about avoiding inheritance tax. It is about making sure the money is there when the family needs it.
When should farmers review inheritance tax protection?
Farmers should review inheritance tax and protection planning as early as possible.
A review may be especially important after:
- Buying or selling land
- Diversifying the farm
- Taking on borrowing
- Moving assets into or out of a partnership
- Incorporating the farming business
- Making gifts to children
- Updating wills
- Marriage or divorce
- A death in the family
- A major change in health
- Changes to inheritance tax rules
The earlier the planning starts, the more options may be available.
Speak to a specialist protection adviser
Inheritance tax planning for farmers can be complex. Agricultural Property Relief, Business Property Relief, trusts, succession planning and life insurance all need to work together.
A specialist protection broker, such as The Insurance Surgery, can help farmers understand what cover may be available and how it could support the wider estate plan.
They can help with:
- Whole of life insurance
- Joint life second death cover
- Term life insurance
- Gift inter vivos insurance
- Policies written in trust
- Key person protection
- Partnership protection
- Shareholder protection
- Cover for farmers with medical conditions
Farmers should also speak to a tax adviser, solicitor or accountant who understands agricultural estates.
With the right advice, life insurance can help provide the money needed to protect the farm, support the family and give the next generation a stronger future.
Frequently Asked Questions
Do farmers have to pay inheritance tax?
Some farming estates may have to pay inheritance tax, especially where the value of the farm and other assets exceeds available allowances and reliefs. Agricultural Property Relief and Business Property Relief can reduce liability, but they may not eliminate it entirely.
What is Agricultural Property Relief?
Agricultural Property Relief is an inheritance tax relief that can reduce the taxable value of qualifying agricultural property. It may apply to farmland and certain agricultural buildings, depending on how they are owned and used.
What is Business Property Relief?
Business Property Relief is an inheritance tax relief that can reduce the value of qualifying business assets. For farms, it may apply to certain trading business assets that do not fully qualify for Agricultural Property Relief.
What changed for farmers from 6 April 2026?
From 6 April 2026, a combined £2.5 million allowance applies to qualifying agricultural and business property receiving 100% relief. Qualifying assets above this amount receive 50% relief, which may create an effective inheritance tax exposure of 20%.
Can married farming couples transfer unused APR and BPR allowance?
Unused allowance may be transferable to a surviving spouse or civil partner, depending on the circumstances. This means married couples and civil partners may be able to pass on more qualifying agricultural and business property with 100% relief.
Why are farmers described as asset-rich but cash-poor?
Many farms have high-value land, buildings and machinery, but limited spare cash. This can make it difficult to pay an inheritance tax bill without selling assets or borrowing money.
Can life insurance help farmers pay inheritance tax?
Yes. Life insurance can provide a lump sum that beneficiaries can use to help pay an inheritance tax bill. It does not remove the tax, but it can provide cash when the family needs it.
Should farmers write life insurance in trust?
Often, yes. If a life insurance policy is correctly written in trust, the payout is usually kept outside the estate and can be paid more quickly to the chosen beneficiaries or trustees.
What type of life insurance is best for farmers concerned about inheritance tax?
Whole of life insurance is commonly used for inheritance tax planning because it is designed to pay out whenever death occurs, provided premiums continue. Joint life second death cover may suit farming couples, while term insurance may suit temporary risks.
What is joint life second death cover?
Joint life second death cover pays out when the second person on the policy dies. It can be useful for married farming couples or civil partners where the inheritance tax issue is expected on the second death.
What is gift inter vivos insurance?
Gift inter vivos insurance is life cover designed to protect against the potential inheritance tax liability on a gift if the person making the gift dies within 7 years.
Can life insurance stop a family farm from being sold?
Life insurance can help reduce the risk of a forced sale by providing cash to help pay inheritance tax. It cannot guarantee the farm will never be sold, but it can give the family more options.
Can life insurance help farming and non-farming children inherit fairly?
Yes. Life insurance can sometimes provide cash for non-farming children, while the farm passes to the child or children who work in the business. This can support fairer succession planning.
Can older farmers get life insurance?
Possibly. Availability and cost depend on age, health, medical history, smoking status and the amount of cover required. A specialist adviser can help explore suitable options.
Can farmers with medical conditions get life insurance?
Many farmers with medical conditions can still get life insurance, although premiums, exclusions or policy terms may vary. Specialist advice can be helpful because insurers assess medical conditions differently.
Is life insurance for farm inheritance tax expensive?
The cost depends on the type of cover, age, health, smoking status, amount of cover and policy term. Whole of life insurance is usually more expensive than term insurance because it is designed to pay out whenever death occurs.
Do diversified farms need extra inheritance tax planning?
Yes. Diversified farms may include assets that are treated differently for inheritance tax. Farm shops, holiday lets, renewable energy projects and commercial lets should be reviewed carefully.
Should farmers rely only on Agricultural Property Relief and Business Property Relief?
No. APR and BPR can be valuable, but the rules are complex and have changed. Farmers should review their wills, trusts, ownership structure, succession plan and protection options.
Who should farmers speak to about inheritance tax planning?
Farmers should consider speaking to a qualified tax adviser, solicitor, accountant and specialist protection adviser. Farm inheritance tax planning usually requires joined-up advice.
Key Takeaway
Inheritance tax is now a major planning issue for many farming families. Changes to Agricultural Property Relief and Business Property Relief mean some farms may face a tax bill even where previous planning assumed full relief.
Life insurance can help by providing cash when it is needed most. When arranged correctly and written in trust, it can support succession planning, help pay inheritance tax and reduce the risk of the family farm being broken up.
For farmers who want to protect the next generation, now is the time to review the farm, the family succession plan, and the available protection options.
Important Disclaimer
This article is for general information only and does not constitute tax, legal, or financial advice. Inheritance tax treatment depends on individual circumstances and may change in the future. Farmers and farming families should speak to a qualified tax adviser, solicitor, accountant and specialist protection adviser before making decisions about inheritance tax, life insurance, trusts or succession planning.
