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The UK government is introducing substantial reforms to Agricultural Property Relief (APR) and Business Property Relief (BPR) from Inheritance Tax (IHT), taking effect from 6 April 2026.
Government proposals to tax inherited farmland have been watered down, with the planned threshold increasing from £1 million to £2.5 million. Assets exceeding this threshold will now receive a reduced 50% relief, potentially resulting in an effective IHT rate of up to 20% on the excess value. Notably, any unused portion of the £2.5 million allowance can be transferred to a surviving spouse or civil partner. This enables couples to pass on up to £5 million in qualifying assets, in addition to other IHT allowances.
Furthermore, shares in unlisted markets, such as the Alternative Investment Market (AIM), will only be eligible for 50% BPR, and this value will not count towards the new allowance. These reforms represent a significant shift in IHT planning, especially for owners of larger farms and businesses whose values exceed the new threshold.
After months of farmer protests and worries raised by some Labour backbenchers, this decision represents a change from earlier policies. In a statement released after MPs had left Parliament for the Christmas recess, Environment Secretary Emma Reynolds explained: “We have listened closely to farmers across the country, and we are making changes today to protect more ordinary family farms.” She added, “It’s only right that larger estates contribute more, while we back the farms and trading businesses that are the backbone of Britain’s rural communities.”
Tom Bradshaw, Head of the National Farmers’ Union, welcomed the change, telling BBC Radio 5 Live it “takes out many family farms from the eye of a pernicious storm”. Gavin Lane, president of the Country Land and Business Association, commented that the government deserves credit for recognising flaws in the original policy and changing course, though he warned the announcement only limits the damage rather than eradicating it. He noted that many family businesses own enough valuable machinery and land to be valued above the threshold, yet operate on narrow profit margins, making the tax still unaffordable.
Those businesses affected are encouraged to review wills and succession plans, consider lifetime gifting, and seek professional advice regarding trusts and payment options, including the extended facility to pay IHT in ten annual interest-free instalments for eligible property.
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