Key changes to agricultural and business property relief for inheritance tax

Introduction

The past year has been a rollercoaster for farming and entrepreneurial clients following Chancellor Rachel Reeves’ announcement in the Autumn Budget on 30 October 2024 of plans to cap 100% Agricultural Property Relief (APR) and Business Property Relief (BPR) for inheritance tax (IHT) in the UK.

Recent government updates on the new rules – due to take effect from 6 April 2026 – offer some welcome breathing space. After extensive lobbying, the Autumn Budget on 26 November 2025 confirmed that the IHT-free allowance will be transferable between spouses and civil partners. Then, in a festive surprise on 23 December, the allowance was significantly increased from £1 million to £2.5 million.

Last week, the government tabled amendments to the Finance Bill 2025–26 to reflect these changes to the original proposals.

Current rules: 100% relief

Under the existing legislation, qualifying agricultural and business property assets of unlimited value attract 100% relief from IHT. This enables landowners, farmers, and business owners to pass on substantial assets without incurring an IHT charge, provided the property meets the eligibility criteria.

New allowance: £2.5 million cap from 6 April 2026

From 6 April 2026, the maximum combined relief for 100% APR and BPR will be capped at £2.5 million per individual. After industry pressure and extensive lobbying, this is a significant increase from the previously tabled proposal to cap 100% APR and BPR allowances at £1 million. IHT will be payable at an effective rate of 20% on agricultural and business property above the £2.5 million allowance.

Transferability: spouses and civil partners

Importantly, the 2025 Budget confirmed that the new allowance will be fully transferable between spouses and civil partners. If the first spouse or civil partner does not use their full allowance, the unused portion can be transferred to the survivor. This means couples can potentially shelter up to £5 million of qualifying property from IHT. When combined with the existing nil-rate band for IHT (£325,000), which is also transferable, a married couple or civil partners can pass on a farm or business worth up to £5.65 million IHT-free.

Trusts

When the government initially announced their intention to increase the APR/BPR allowance to £2.5 million, there was no additional detail on whether this amendment would apply in the same way to assets held in trust. The release of extra information last week makes it clear that the changes apply to qualifying trusts. This is good news, and means that pre-October 2024 Budget qualifying trusts each have a full £2.5 million APR/BPR allowance of their own. For many families, the larger trust allowance also reinforces the benefits of making long-term tax efficient transfers of APR/BPR assets into trusts using transitional provisions, ahead of the new rules coming into force in April – (for further details, you might like to read our article: Planning for business owners in a post-Budget world

Other key points

• Payment by instalments: For estates exceeding the allowance, IHT on qualifying agricultural and business property may be paid in interest-free instalments over ten years.
• Indexation: from 2031, the current draft of the Finance Bill provides that the £2.5 million allowance will be indexed in line with inflation, helping to maintain its real value over time. It remains to be seen whether this indexation actually materialises, or the allowance is instead frozen as we approach 2031.

What should you do now?

1. Review asset schedules and associated anticipated IHT liabilities in light of the revised APR/BPR allowances.
2. Consider the timing of transfers to the next generation and associated trust arrangements.
3. Update Wills to ensure they are compatible with the new rules to be introduced in April 2026.

In summary, these changes provide reassurance for smaller family businesses and farms. In some instances, the higher BPR/APR allowance and its transferability between spouses, may reduce the urgency for lifetime gifting. However, it remains important to review the interaction of IHT reliefs and the flow of assets under Wills in the event of death. For larger businesses and farms a window of opportunity remains (until April 2026) to transfer unlimited value of APR/BPR qualifying assets into trust without incurring immediate charges.