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Changes are coming to inheritance tax (IHT) for agricultural and business assets. After strong pushback on the original £1 million cap announced in the Autumn 2024 Budget, the Treasury has revised its plans.
Sam Hardy, Associate in the Wills and Probate team at our Market Harborough office, explains the upcoming changes to IHT for farms and family businesses, and what they could mean for you.
Why the change matters
IHT has historically offered generous relief to trading farms and businesses, allowing these assets to pass tax-free to the next generation. But the UK government is reforming these rules in 2026 to ensure that larger estates are more exposed to paying IHT.
At the Autumn Budget 2024, the Government proposed limiting 100% IHT relief on farming assets to just £1 million per person. This sparked serious concern in the agricultural community. Smaller family-run farms worried they might have to sell land to cover the tax,and regional land prices meant similar farms faced wildly different bills.
In response to widespread backlash, the Treasury has now raised the full relief cap to £2.5 million per person. That means qualifying family farms can pass more wealth through generations without paying IHT.
These changes will be written into the Finance Bill 2025–26, taking effect from 6 April 2026.
How will the relief threshold work?
Before April 2026
- You receive 100% agricultural/business property relief (APR/BPR) on all qualifying farm/business assets, no matter the value
From April 2026
- 100% relief on the first £2.5 million of qualifying assets per person
- Assets above that cap receive 50% relief, effectively bringing IHT on the excess to 20% (half the standard 40%)
- Married couples or civil partners can combine relief, passing up to £5 million in farm/business assets tax-free
You can also still use your personal nil-rate bands (currently £325k plus up to £175k residence allowance each) on non-farm assets.
Who will be affected?
- Small-to-mid farms: The Government estimates that roughly 85% of estates currently claiming APR will pay no IHT post-change
- Larger estates: Farms valued above £2.5m per person (or £5m per couple) will still pay IHT, but the value above that threshold will attract 50% IHT relief instead of 100%
What should you do now?
If you have business or agricultural assets, we recommend you:
- Review your estate today and think about how the new rules would apply to you if the worst happened
- Consider the potential IHT liability on the portion above the threshold if your business/farm assets exceed £2.5 million (or £5 million as a couple)
- Review estate plans, especially where all assets are held by one spouse
- Update wills and succession strategies, using both partners' relief and nil-rate bands effectively
The increased £2.5 million relief cap is a welcome boost for many family farms, but timing matters. Getting ahead with valuation, planning, and professional advice can make a huge difference.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
