Inheritance Tax Changes for Farmers and Rural Businesses: What They Mean for You

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Clara Staunton - Partner

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Significant changes are coming to inheritance tax (IHT) that will affect farmers and rural business owners from 6 April 2026. Agricultural property relief (APR) and business property relief (BPR) are very valuable reliefs from IHT.

However, in the 2024 Autumn Budget, the government announced major changes to the relief, which have sent shockwaves across the farming community. The government is capping the 100% relief that currently applies to APR and BPR.

Our Agriculture Lawyers explore what these inheritance tax changes mean for farmers and rural business owners, and the steps you can take to prepare.

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What is changing?

  • A £2.5 million cap on relief: From April 2026, only the first £2.5 million of your qualifying business and agricultural assets combined will be completely free of IHT.
  • Reduced relief on the excess: Any value over this £2.5 million cap will only get 50% relief. This means you will pay IHT at an effective rate of 20% on the excess value.
  • Any unused portion of the £2.5 million 100% APR and BPR allowance will be transferable to a surviving spouse or civil partner, including where the first spouse died before April 2026. This means couples may be able to pass on up to £5 million of qualifying assets before Inheritance Tax applies.
  • AIM shares affected: Shares listed on the Alternative Investment Market (AIM), which previously received 100% relief, will now only qualify for 50% relief.
  • Easier tax payment option: From 6 April 2027, you will have the option to pay any IHT owed on agricultural or business property in interest-free instalments over 10 years.
  • Later consultations have confirmed that £2.5 million threshold applies to lifetime gifts on qualifying agricultural property. However, it does appear, after some consultation, that the £2.5 million will be renewed every 7 years, like the nil rate band threshold. (It is important to obtain professional advice when undertaking lifetime planning such as this.)

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What do these changes mean for you?

For many farmers, APR and BPR have allowed the transfer of farms and rural businesses to the next generation without a significant IHT bill.

These changes could have serious financial consequences for businesses valued over £2.5 million.

For example, a farm valued at £3 million would benefit from 100% relief on the first £2.5 million under the new allowance.

The remaining £500,000 would qualify for 50% relief, leaving £250,000 exposed to Inheritance Tax at 40%. This would result in an Inheritance Tax liability of £100,000.

Where sufficient liquidity is not available, this may still place pressure on families to sell land or other assets to meet the tax liability.

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  • Review your situation now: With the changes coming into effect in April 2026, it is crucial to review your current succession plan with your advisers.
  • Update your will: Ensure your will and business ownership structure are set up to make the most of both your and your spouse's individual £2.5 million allowances.
  • Consider lifetime gifting: Gifting assets while you are still alive is an option, and the £2.5 million allowance for lifetime gifts will refresh every seven years.
  • Start the family conversation: Talk to your family about your plans early so that everyone is aware of the changes and what they mean for the future of the farm.

Looking Ahead: Preparing for Further Updates

We will await to see if November’s budget brings any further information to the new rules.

It is important to take professional advice when undertaking estate planning. Forward planning is going to be even more essential for those affected by the new rules.

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Speak to Our Rural and Agricultural Law Experts

If you would like to discuss how these inheritance tax changes could affect your farm or rural business, our specialist agricultural and private client lawyers can help.

We can review your current arrangements, explore lifetime planning options, and ensure your estate is structured in the most tax-efficient way possible.

0161 941 4000

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Clara Staunton's profile picture

Clara Staunton

Partner

Clara has over 15 years of experience acting as a Wills, Trusts, and Probate solicitor. Clara has specialist expertise in dealing with complex estates and trust administration.

About Clara Staunton