Rural estate strategic planning

The year ahead is set to be pivotal for rural estate planning, underpinned by upcoming changes to the Inheritance Tax (IHT) regime in April 2026, the need for financial resilience and a sharper focus on sustainability goals.

Strategic estate planning in a shifting landscape

The reforms to Agricultural Property Relief (APR) from IHT, announced in the 2024 Autumn Budget, have introduced a more complex tax landscape for landowners. The increase to the tax burden on estate owners brings to the forefront the importance of reviewing estate strategies to mitigate risks and harness opportunities.

The government announced an increase to the proposed threshold for APR to £2.5m in late December 2025, providing breathing space and much-needed stability to many family farms and rural businesses. That said, the value of essential assets required to run modern farming and estate businesses can accumulate quickly, and so careful forward planning is still important.

Turning underperforming land into productive assets is critical, not only for income diversification but also to reduce the risk of higher tax liabilities if qualifying agricultural or business use cannot be demonstrated. This could accelerate the trend towards selling non-core assets, including those with low income potential, high maintenance costs or limited strategic value. Some estates may reinvest the capital in productive or sustainable ventures that deliver long-term growth and resilience.

Beyond farming, diversification into non-agricultural activities, such as renewable energy projects, holiday lets, and environmental schemes, is becoming increasingly popular. These ventures typically provide steady income streams and can support sustainability objectives. In some cases, they can run alongside food production. For example, the 12 months to June 2025 saw a 36.4% rise in land used for a combination of both solar panels and grazing or agricultural production (Defra).

The incentive to maintain tax-advantaged status places a continued importance on maintaining agricultural or trading related business activities. In respect of the core activity of food production, this priority is complicated by ongoing uncertainty around post-Basic Payment Scheme (BPS) funding. Crucially, delays in confirming the details of the 2026 Sustainable Farming Incentive (SFI) hinders effective forward planning, leaving estates unable to gauge how environmental payment options will interact with agricultural output and ensuring food production remains profitable. As a result, the year ahead will be important for balancing food production with diversification opportunities.

The role of sustainability

Increasingly, estates are recognising the strategic value of embedding sustainability in their operations, with robust sustainability reporting emerging as a critical management tool. Compliance and carbon net-zero commitments are ‘push’ factors in decarbonising built assets, with changes to Minimum Energy Efficiency Standards (MEES) in the pipeline creating an urgent need to plan for upgrading EPC ratings of let residential and commercial buildings.

However, a growing number of estates are moving beyond compliance, motivated by the potential for new income streams and the commercial benefits of meeting evolving customer expectations, in addition to meeting their own internal targets. Estates are proactively engaging with emerging natural capital markets, particularly in carbon sequestration, biodiversity net gain (BNG), and nutrient neutrality schemes. The extension of APR to land under environmental agreements from April 2025, together with the expected expansion of BNG requirements to large-scale infrastructure projects in 2026 offers opportunities for estates. Over the next year, we expect momentum to build in allocating land to these schemes as estates continue to assess the financial and environmental benefits.

Evolving customer expectations are amplifying the business case for sustainability. Whether renting property, using estate assets, or purchasing agricultural outputs, customers now demand higher environmental performance and transparency. A notable example is the mounting pressure for estates to engage in carbon reporting to meet the sustainability requirements of supermarket supply chains. This will be advanced by the introduction of UK Sustainability Reporting Standards from 2026, making emissions measurement and reduction a prerequisite for maintaining market access. The extent to which estates engage with sustainability beyond regulatory compliance depends on their core principles and intergenerational commitment to stewardship. Both the interpretation of sustainability and the reporting metrics adopted will remain unique to each estate, reflecting its values and long-term vision.

Key action points for the year ahead

For those yet to begin the process, the coming year will be crucial for reviewing estate structures and assessing current exposure to IHT. This could involve obtaining up-to-date valuations for all assets to understand the potential tax liability and drawing up a comprehensive asset schedule detailing ownership. For some estates, this review may result in the timeline for succession and generational handover moving forward faster than anticipated.

This provides an ideal opportunity to review the estate’s income potential. Decisions may include reallocating underperforming land to non-agricultural ventures, alongside optimising agricultural production.

Ultimately, 2026 will demand proactive, strategic thinking. Professional advice will be important and has the potential, where targeted correctly, to add value. Such advice can help navigate tax complexities and unlock opportunities for income growth and building in resilience to every business. By combining careful financial planning with diversification and sustainability, rural estates can successfully position themselves to adapt to the challenges and opportunities that lie ahead.