Provisions in The Finance Act 2026 (“Act”) bring certain UK agricultural land and buildings, where ownership is held through non-UK entities, within the Inheritance Tax (“IHT”) net.
The legislative direction of travel
The measure forms part of a broader legislative trend of bringing certain value linked to UK land within the IHT charge, notwithstanding the use of an offshore holding arrangement.
Historically, interests in a non-UK structure were treated as not being within the UK i.e., non-UK situs property, for IHT. For individuals outside the full scope of UK IHT (previously classified as ‘non-doms’ and now as ‘non-Long-Term Residents’ (“non-LTR”)), such assets could be categorised as ‘excluded property’.
This meant that UK agricultural land held through an offshore structure has been outside IHT in those circumstances: the tax concentrated on the offshore interest, not the land held by it.
This contrasted with the position for UK residential property, where under the Finance (No2) Act 2017, IHT may be chargeable on an interest in an offshore structure if its value is attributable to UK residential property
The Act, as HM Revenue & Customs’ published material indicates, brings indirectly held UK agricultural property into a regime broadly comparable to that already applying to indirectly held UK residential property.
The historical IHT position for offshore-held UK agricultural land
Where a non-LTR owned UK farmland via a non-UK structure:
- the individual owned an interest in the structure;
- the interest was non-UK situs property;
- the interest may have qualified as excluded property; and
- the value of the interest was typically outside IHT.
The IHT position therefore depended on the location of the holding, not the location of the underlying land.
What the Finance Act 2026 changes
In substance, the Act directs attention away from the place of incorporation of the holding entity and towards the location of the underlying agricultural property.
How IHT is now assessed
In consequence, using a non-UK vehicle no longer, by itself, keeps the underlying UK agricultural asset outside the IHT analysis.
If a non-LTR owns shares in an offshore structure, with the main asset of that structure being UK farmland, the relevant value for IHT purposes will (subject to available reliefs / exemptions) be the proportion attributable to the farmland. The offshore interest is no longer analysed solely by reference to its non-UK situs.
The Act does not remove reliefs like Agricultural Property Relief or Business Property Relief (“Reliefs”). However, now that the assets in the offshore structure are within the IHT charge, the availability and quantum of the Reliefs become a key consideration.
Advisers will therefore need to get clarity, amongst other things, on whether the Relief conditions are satisfied in full, and the effect of this legislative change on liability to IHT.
Steps for consideration
Logical steps to take include:
- Identifying affected structures holding UK agricultural land directly or indirectly.
- Calculating what proportion of value is attributable to UK agricultural property.
- Getting comfort on whether or not the land is likely to benefit from any Reliefs, taking into account the reduction in those Reliefs since 6 April 2026.
Wider implications beyond agriculture
This mirrors the method already adopted in the residential property sphere, under which the legislation attributes significance to the underlying UK asset rather than treating the intermediary entity as determinative. It is noteworthy that, if policymakers chose, this approach could be adapted to other asset classes such as certain business interests connected to UK activities. Such a change would be relatively easy to achieve if there was sufficient appetite for it, but would have far-reaching consequences for business structures and their owners.
At present the significance of the measure is confined to agricultural property, although it also shows how Parliament may frame comparable rules for other categories of UK-connected assets.
From structure to substance
The Act does not alter the fundamental IHT framework. Rather, it adjusts the method by which UK situs is determined for agricultural property.
For affected non-LTRs, attention shifts from the wrapper to the relief position: now that the value is in charge, eligibility for Reliefs and changes thereto are even more important. For more information, get in touch with our wills and estate planning lawyers.
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