Lawyers are advising farmers and family business owners to review their wills and succession plans in light of significant inheritance tax changes set to take effect in 2026.
They warn that some families could encounter a “dry” tax charge—an obligation to pay taxes without receiving the underlying asset or any sale proceeds.
Legal experts from Irwin Mitchell have highlighted that these reforms may also raise the likelihood of disputes between surviving business partners and family members if succession arrangements are not updated.
Starting on 6 April 2026, full relief on Agricultural Property Relief (APR) and Business Property Relief (BPR) will be limited to a combined total of £2.5 million per estate.
Any qualifying value above this threshold will be eligible for only 50% relief, instead of the current 100% exemption.
This change means that estates holding valuable farms or family businesses could face significantly higher inheritance tax liabilities.
While the government will allow inheritance tax to be paid in instalments over 10 years for qualifying agricultural and business properties, lawyers caution that the tax bill will ultimately fall on the estate.
This situation could result in a “dry” tax charge, particularly when existing shareholder or partnership agreements automatically transfer ownership of the business to a surviving co-owner. As a result, the deceased’s family may be left without ownership, shares, or proceeds to cover the tax.
Irwin Mitchell emphasises the urgency for families to review their wills, shareholder agreements, partnership deeds, and succession structures to ensure that their assets and tax liabilities are aligned before the new rules are implemented. Without proper planning, families could face substantial tax bills without receiving any direct financial benefit from the business or farm.
James Laycock, a partner and specialist in resolving disputes around wills, estates and trusts at Irwin Mitchell, said:
“Many farming and business families still assume the enterprise will pass tax‑free but under the new cap, that won’t always be true.
“Where shareholder or partnership agreements transfer the business to a co‑owner on death, the estate may carry the IHT bill even though the family doesn’t inherit the asset. That’s the classic ‘dry’ tax scenario – risks are avoidable with the right planning.
“Where a Will leaves a farming business to one part of the family and other cash assets to the non-farming family, the non-farmers could end up paying the IHT, reducing or extinguishing their part of the estate.
“This might give rise to an increase in will disputes in the coming years brought by disappointed beneficiaries who find themselves with a much smaller inheritance than expected from the deceased.”
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