Happy New Year to all our clients!
The turn of the year has brought greater clarity to the policy and commercial framework facing farming and rural businesses. Following a period of uncertainty through 2024 and much of 2025, several key issues are now better defined, allowing businesses to look beyond short-term risk and refocus on profitability, resilience and long-term planning.
This update summarises the position as it stands in January 2026, with particular reference to Inheritance Tax, the Sustainable Farming Incentive, and the wider direction of Government policy affecting farm businesses.
Inheritance Tax and Agricultural Property Relief
Following sustained pressure across the agricultural and wider family business sectors, the Government confirmed in December that the proposed changes to Inheritance Tax affecting Agricultural Property Relief (APR) and Business Property Relief (BPR) would be materially amended. A welcome Christmas gift to many small farm businesses.
The position now settled for this Parliament is that:
- The full IHT relief band for APR and BPR qualifying assets is £2.5 million.
- The relief is transferable between spouses, enabling a married couple to pass up to £5 million of qualifying business assets without an IHT charge.
This represents a significant retreat from the position originally signalled in 2024 and has eased immediate political and financial pressure on family-owned farms and rural businesses.
However, this should not be interpreted as the removal of IHT risk altogether. Many medium and larger farming businesses remain exposed to capital taxation on death, and the complexity of relief qualification, ownership structure and valuation remains unchanged. Succession planning, asset structuring and professional valuation advice remain central, particularly where estates include diversified enterprises, development land, let property or partnership interests.
Farming Profitability and the Direction of Policy
The publication of the Farming Profitability Review in December has reinforced a shift in emphasis away from income support and towards business performance and investment capacity.
The review, comprising 57 recommendations, highlights that:
- Farming must be treated explicitly as an economic sector, not solely an environmental one.
- Long-term profitability and resilience depend primarily on management capability, access to skills, and the ability to invest.
- Barriers to progress are often structural, including planning constraints, uncertainty over schemes, and lack of alignment across Government departments.
In response, DEFRA has announced the creation of a Farming and Food Partnership Board, bringing together representatives from farming, food, retail and finance to help shape policy delivery, remove barriers to investment and support business growth.
While the review itself does not change policy, it provides a clear signal of intent. The effectiveness of this agenda will depend on how it translates into practical changes in planning, regulation and scheme design during 2026 and beyond.
Sustainable Farming Incentive – The 2026 Offer
After a difficult period for environmental schemes in 2025, the Sustainable Farming Incentive (SFI) is being relaunched in 2026 with a revised structure intended to improve clarity, accessibility and confidence.
Key points for 2026 include:
- Two application windows:
- An initial window expected in June 2026, prioritising smaller farms and those without existing SFI agreements.
- A second, broader window anticipated in September 2026, open to all eligible applicants.
- A simplified and more focused scheme design, aimed at reducing administrative burden while retaining environmental outcomes.
- A commitment from Government to provide greater certainty on budgets and scheme continuity, recognising the importance of confidence for business planning.
SFI should be approached as a commercial decision, not a substitute for profitability. Each business should assess whether the options offered provide an appropriate financial return, support necessary land management change, or risk distorting the underlying enterprise.
Preparation ahead of the application windows will be important, particularly where SFI interacts with existing cropping, grazing, tenancy or diversification arrangements.
The Wider Context for Rural Businesses
Three themes now shape the operating environment for farming and rural enterprises:
A business-led income model
With direct payments effectively ended in England, income generation is increasingly dependent on market performance, efficiency and strategic decision-making rather than support payments.
Ongoing structural change
Climate volatility, technological change, evolving supply chains and land use pressures mean that adaptation is no longer episodic but continuous. Land occupation structures, succession arrangements and investment strategies need to reflect this reality.
Enterprise and management quality
Policy frameworks can enable or constrain, but performance ultimately turns on people. Investment in skills, management, planning and professional advice remains one of the strongest predictors of long-term resilience.
Looking Ahead
As 2026 unfolds, priorities for many farming and rural business clients will include:
- Reviewing succession and estate planning in light of the revised IHT position.
- Preparing for SFI 2026 application windows and assessing alignment with business objectives.
- Monitoring planning and regulatory changes arising from the profitability agenda.
- Embedding profitability, resilience and risk management into core business planning.
We will continue to provide updates as further detail emerges and are happy to discuss how these developments affect individual businesses, estates and landholdings.