Key Changes to Inheritance Tax Relief for Farmers and Business Owners

In a major update, the UK government has announced an increase in the Agricultural and Business Property Reliefs (APR and BPR) threshold, set to take effect in April 2026. 

The threshold will rise to £2.5 million, and the allowances will continue to be transferable between spouses or civil partners. This will allow spouses or civil partners to pass on up to £5 million in qualifying agricultural or business assets without incurring inheritance tax. This will apply to people who are widowed and have lost spouses or civil partners before the policy was introduced.  

What’s Changing?

• Increased Threshold: The threshold for 100% APR and BPR will rise from £1 million to £2.5 million per estate. Estates worth up to £5 million will be eligible for tax-free transfer between spouses or civil partners.
• Inheritance Tax Relief: This change ensures that most smaller farms and businesses will pay no inheritance tax. The Government state that around 85% of estates claiming agricultural property relief in 2026-27, including those that also claim for business property relief, are forecast to pay no more inheritance tax on their estates
• Key Information: 50% relief with continue to apply to qualifying assets above the available thresholds. 

How the Change will Affect Different Estates

The Government claim that the number of estates impacted by these changes is expected to be much lower than previously forecast. Under the previous threshold of £1 million, around 2,000 estates were set to pay higher inheritance tax in 2026-27. With the increase to £2.5 million, this number will drop to just 1,100 estates, a reduction of almost 50%. For agricultural estates, the number of estates affected will fall from 375 to 185, significantly reducing the burden on family-run farms.

Additionally, the Government claim that the number of estates claiming business property relief and facing higher tax bills will also decrease, with around 220 estates impacted down from an initial forecast of 325 estates.

Why the Change is Important

The Government have set out that the decision to raise the threshold is a direct response to concerns from farmers and businesses regarding the impact of inheritance tax on family farms and business estates. With the new reforms, more family-owned farms and small businesses will be shielded from inheritance tax, which can be a heavy burden when passing down valuable land or assets to the next generation.

Currently under the existing reliefs, only estates valued up to £1 million are eligible for 100% relief from inheritance tax. The new policy will expand this by allowing estates worth up to £2.5 million to benefit from full relief and with the ability for spouses to combine their allowances, a couple will be able to pass on up to £5 million of qualifying agricultural or business assets tax-free. 

If your estate includes business or agricultural assets, it is important to review your estate planning arrangements to ensure these reliefs are fully utilised.