Farm refinance and restructuring of agricultural borrowing

From 6 April 2026, agricultural and business property relief at 100% covers only the first £2.5 million of qualifying property, and relief at 50% applies above that. The allowance was first set at £1 million and was raised to £2.5 million after an announcement on 23 December 2025, and an unused amount can pass to a surviving spouse or civil partner. Families with land and machinery worth more than the allowance may face a bill they had not planned for, and some are reviewing borrowing alongside succession, for example refinancing to buy out a sibling or to restructure debt before the next generation takes over.

Can inheritance tax on a farm be paid in instalments?

Yes. Inheritance tax on property that qualifies for agricultural or business property relief can be paid in ten equal annual instalments, with no interest charged on them. That spreads the bill over a decade without selling land, and some families compare the instalments with a farm loan or mortgage taken to pay the tax at once. Lenders look at whether the farm's income can carry the instalments and any new borrowing together, so the cash flow forecast needs to show both.

• Valuation. Current value of land, buildings and machinery.
• Allowance. How much falls within the £2.5 million at 100% relief.
• Instalments. Ten annual payments set against farm income.
• Existing debt. Loans already secured on the land.

GOV.UK sets out the changes to agricultural property relief. Our commercial mortgages page explains longer term borrowing against land. Instant Quotes shows panel lenders that consider farm refinancing.

Often by less than owners expect. A loan secured on farmland reduces the value of that land, and where the land already qualifies for agricultural property relief the debt mostly reduces relieved value rather than value that would be taxed. Since April 2013, money borrowed to buy, maintain or improve relievable property is set first against that property, and only any excess comes off the rest of the estate. A farm mortgage taken for a business reason, such as buying out a partner or clearing expensive short term debt, is therefore judged on its business merits and not as a tax saving.

Does borrowing to buy more land reduce inheritance tax?

Not in the way it once did. Under the rules HMRC applies to debts incurred from 6 April 2013, a loan used to buy agricultural land is set against that land first, so it reduces the relieved value before it touches anything else. With relief at 100% now capped at £2.5 million, the interaction is more involved, and families buying land ask a tax adviser to model it alongside the lender's affordability test.

• Purpose. What the borrowing paid for and when it was taken.
• Security. Which land the loan is secured on.
• Relief. Whether that land qualifies for agricultural property relief.
• Advice. A tax adviser's model of the estate with and without the loan.

HMRC's manual explains how borrowing to buy relievable assets is treated. Our agricultural land purchase guide covers funding more acres. Instant Quotes lists the panel lenders that could refinance a farm.

• Lost support income. In England, area payments have been replaced by delinked payments that reduce each year until they end. Borrowing sized when that income was dependable may now need a longer term or a different shape.
• A hard-core overdraft. When the overdraft stays drawn at its low point every year, the bank may ask for it to be reduced or termed out, and the farm pays overdraft pricing on what is really long-term debt.
• Too many machinery agreements. Fixed monthly payments on equipment can crowd out everything else after a poor harvest or a fall in milk price.
• Succession. One child takes on the farm and the others need to be treated fairly, or a retiring partner wants capital out. Raising money against land is often the only practical way to pay them.
• Inheritance tax planning. The reforms to agricultural and business property relief mean some estates now face a tax liability on death that did not exist before. Families are reviewing how debt is held, which entity owns which land and whether borrowing could be needed to meet tax later. That is a job for your accountant and solicitor first; finance follows the plan.
• A change in relationship. A partnership dissolving, a divorce, or a lender reducing its agricultural exposure can all force a refinance on a timetable the farm did not choose.

An invented example in round numbers, with no rates. A mixed farm has an overdraft that has not dropped below £200,000 for three years and five machinery agreements costing a combined £8,000 a month. Its bank has asked for the overdraft to come down. A lender agrees a term loan secured on a block of arable land, excluding the farmhouse and yard, which repays the overdraft and the two most expensive machinery agreements. A smaller seasonal overdraft remains for inputs. Monthly outgoings fall and the farm knows the facility will not be withdrawn at short notice, but the debt now runs much longer and is secured on land.

Refinancing can buy time and certainty, but it does not fix a farm that loses money. Stretching repayments increases total interest, and moving unsecured or asset debt onto land raises the stakes if things go wrong. Personal guarantees from partners and directors are common. Before refinancing, check whether the current lender will restructure on better terms, whether a tax bill could be handled through Time to Pay with HMRC, and whether selling an underused building or parcel would solve the problem with less debt. Where the aim is new enterprise income rather than relief, our page on farm diversification finance may be the better starting point.