Ever since Rachel Reeves announced in her 2024 Budget changes affecting agricultural businesses, the issue of how to protect the family farm from being broken up if faced with an inheritance tax (IHT) bill has been front-of-mind for many in agriculture.
The changes, which came into effect in April 2026, have seen a renewed focus on IHT mitigation measures, including making lifetime gifts, rewriting wills to make full use of available allowances for married couples and civil partners, and bringing forward succession plans to avoid farms becoming caught up in inheritance issues when the older generation passes away.
However, one solution which has received less attention is taking out lifetime insurance to cover any potential IHT bill. Essentially, this is where a policy is taken out with the objective of paying out on death, with the proceeds then used to meet some or all of the inheritance tax liability.
This option can be especially relevant for farming businesses, which tend not to have many liquid assets that can be realised to pay an IHT bill. Generally, the value in a farm is held in the land, buildings and machinery, all of which are vital to the ongoing viability of the business.
One of the main advantages of using protection in this way is the reassurance it can provide: the payout is guaranteed provided that the premiums have been maintained, and with a guaranteed lifetime insurance plan the premiums do not increase for the life of the policy. You can also consider increasing life cover to help fight the effects of inflation however the premiums would also increase retrospectively.
If the policy is written in trust, it can usually pay out quickly, avoiding probate delays, and the proceeds should sit outside the estate for IHT purposes. This can help preserve the estate intact, reducing the need to sell property, land, investments or family assets to pay the tax bill.
Of course, such policies do come with a cost attached, and an ongoing cost at that: premiums must be maintained to ensure the policy remains in force and pays out on the insured person’s death. The earlier a policy is taken out, the lower the premium is likely to be; as an example, someone taking out such a policy at age 65 could expect to pay around 80% more than someone starting it at age 50.
A protection policy should not be viewed in isolation. Its suitability will depend on factors such as affordability, health, underwriting, the level and timing of any potential IHT liability, and how the policy fits alongside wills, trusts, gifting and wider succession planning. Tax rules can also change, so specialist advice is essential.
But what many in the farming world are looking for is reassurance that the next generation will be able to carry on without having to sell off assets which are vital to the viability of the farm to meet any future inheritance tax bill. Lifetime insurance can help provide that reassurance and should be considered alongside other estate planning measures when reviewing the potential impact of the Budget changes.