The Government announced this week a significant change to inheritance tax reliefs for agricultural and business property, raising the threshold from £1 million to £2.5 million per person. This revision, which will take effect from 6 April 2026, represents a substantial shift from the reforms originally unveiled at Autumn Budget 2024.
Understanding the background
Agricultural Property Relief (APR) reduces the amount of tax that farmers and landowners must pay when farmland is passed to the next generation, whilst Business Property Relief (BPR) applies similar treatment to business assets. Prior to the changes announced in Autumn Budget 2024, there was no cap on how much wealth could be exempted from inheritance tax through these reliefs.
The original Budget 2024 reforms proposed limiting 100% relief to the first £1 million of combined agricultural and business property, with 50% relief applying thereafter. This would have resulted in an effective tax rate of 20% on qualifying assets above the threshold, compared to the standard 40% inheritance tax rate.
What has changed?
Following sustained pressure from the farming community and rural businesses, the Government has now announced that the threshold at which 100% Agricultural Property Relief and Business Property Relief applies will increase from £1 million to £2.5 million per person, with 50% relief continuing to apply to qualifying assets above that level.
This change will be introduced through an amendment to the Finance Bill 2025 and brings several key benefits:
For married couples and civil partners: The allowance is transferable between spouses, meaning a surviving spouse or civil partner will be able to pass on up to £5 million of qualifying agricultural and business assets tax-free, in addition to existing nil-rate bands. When combined with the standard £325,000 nil-rate bands, a couple could pass on up to £5.65 million tax-free.
Interest-free payment terms: Any inheritance tax due on assets above the £2.5 million threshold can be paid in equal instalments over 10 years interest-free.
Retrospective application: Importantly, this will apply to people who are widowed and have lost spouses or civil partners before the policy was introduced.
Impact on estates
According to Government estimates, these revised thresholds will significantly reduce the number of affected estates. Around 85% of estates claiming Agricultural Property Relief are now forecast to pay no additional inheritance tax as a result of the reforms. The number of estates claiming APR (including those also claiming BPR) affected by the reforms will be approximately halved, from 375 to 185 in 2026-27.
Planning considerations
Whilst this announcement will provide considerable relief to many farming families and business owners, estate planning remains crucial. Several important points to consider:
- Full exemption for transfers between spouses and civil partners continues to apply
- Gifts to individuals more than seven years before death will continue to fall outside the scope of inheritance tax
- Qualifying assets above the £2.5 million threshold will be subject to an effective tax rate of 20% (with 50% relief from the standard 40% rate)
- The specific circumstances of each estate may affect the tax calculation, including the availability of the residence nil-rate band
What this means for you
If you own agricultural property or business assets that may be subject to inheritance tax, now is the time to review your estate planning arrangements. The changes coming into force in April 2026 may significantly impact your succession planning strategy.
We recommend speaking with us at Ormerod Rutter to ensure you understand how these reforms will affect your particular circumstances and to explore planning opportunities that may be available to you.
Contact us on 01905 777600 or email hello@ormerodrutter.co.uk for more information.
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