Inheritance Tax: What do changes to Agricultural Property Relief & Business Property Relief mean for you?

Since November 2024, businesses and farmers have been concerned with the proposal to change some Inheritance Tax (IHT) reliefs from 6 April 2026.

The proposal announced in the November 2024 budget was to restrict 100% Agricultural Property Relief (APR) and 100% Business Property Relief (BPR) to a combined total of £1m.

The most common assets qualifying for BPR are:

• Interest in an unincorporated business.
• Shareholdings in an unquoted trading company.

The most common assets qualifying for APR are:

• Land and Property owned and occupied for a farming business.
• Agricultural land where the land has been rented out and used for the purpose of agriculture.

The effect of these reliefs is that, on death, these assets are free of IHT. It also means that qualifying assets can be given to a lifetime trust.

Since 30 October 2024 there has been a significant amount of pressure on the Government to change this.

Dubbed the ‘family farm tax’ the National Farmers Union (NFU) explained that this would mean, upon the death of a farmer, it would not always be possible to pass the family farm to the next generation.

The Government’s response was that, whilst there was a limit of 100% relief on £1m, anything above this still qualifies for 50% relief, effectively making the IHT rate 20% (being one-half of the standard 40% rate).

When originally announced, it was also said that the £1m allowance was not transferable between spouses. This particularly affected widows or widowers who had inherited a farm from a spouse and now only had a £1m limit. Also affected were elderly farmers who were too late in life to carry out realistic tax planning, most of which requires the transferor to live seven years.

However, there was some relief on Budget Day in November 2025 when it was announced that the £1m would be transferable between spouses.

Then in a surprise announcement on 23 December 2025, the Government confirmed that the £1m limit was to be increased to £2.5m.

Given that the political pressure has gone on for so long it is astonishing that the change happened so soon after a budget. No doubt an attributable  reason was the one Labour MP who voted against this Finance Bill measure and the 33 Labour MP’s who abstained.

For many constituencies this is the first time they have returned a Labour MP and so is a new challenge for the Government hierarchy.

So, what does that mean?

In broad terms, it means a husband-and-wife farmer will now be able leave 500 acres tax free to the next generation instead of the previously announced 200. This will be a great help.

It also means that a family business of up to £5m can now be passed on tax free as opposed to the previous £2m. We certainly act for a significant number of clients whose businesses would fall between £2m and £5m.

Just to be clear, to get the double IHT band it is necessary for both spouses to qualify for BPR and APR, the transfer does not apply without reason.

It is therefore important that anybody with a farm or business worth more than £2.5m is taking the appropriate IHT planning advice.

Careful IHT and estate planning is key to safeguarding what you’ve worked hard for, and to making sure it is passed on in the most tax-efficient manner possible. To talk to one of our tax specialists about Inheritance Tax matters and planning, or to discuss your eligibility for APR and BPR, contact us today.