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New inheritance tax rules for farmers and business owners
The landscape of inheritance tax is changing, particularly if you own a farm, family business, or other valuable assets, it’s important to understand what’s coming, how it might affect you, and what you can do now to plan ahead.
Over the past few years, the government has announced reforms that will reshape how Agricultural Property Relief (APR) and Business Property Relief (BPR) work from April 2026. While the changes were first announced in the Autumn Statement of 2024, on 23rd December 2025 welcome adjustments were published by the Government.
What are the current rules around Business and Agricultural Property Relief?
Currently, Agricultural Property Relief (APR) and Business Property Relief (BPR) remain important tools for reducing inheritance tax on qualifying assets.
- APR provides relief from inheritance tax on agricultural property, typically working farmland, pasture, farm buildings and sometimes farmhouses, by reducing the value of those assets for tax purposes, often to nil if the relief is available at 100%.
- BPR reduces the value of qualifying business assets in a trading company or business, such as an unincorporated business, partnership interest or unquoted company shares, again potentially down to zero for inheritance tax purposes where 100% relief applies.
Both reliefs depend on strict conditions, including that the property must be genuinely used in the business or agricultural activity and, in the case of BPR, usually owned for at least two years before the transfer.
Under the current rules, there is no fixed cap on how much relief an individual can claim, meaning that if all conditions are met, the full value of qualifying agricultural or business assets can be exempt from inheritance tax. These reliefs operate by reducing the taxable value of an estate before applying the regular nil‑rate band and other allowances, and they are available on both lifetime transfers and transfers on death, significantly lowering or eliminating the inheritance tax payable on qualifying assets.
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What’s changing from April 2026?
In the Autumn Statement 2024, the Chancellor Rachel Reeves announced plans to allow only the first £1 million of qualifying agricultural or business assets to benefit from the full 100% inheritance tax relief, with anything above that receiving a 50% relief. This raised concerns for many, especially those who had planned to pass on family farms and businesses without forcing future generations into tax situations that they were unable to plan for.
Responding to public feedback, the government revised this approach, announcing in December 2025 that from 6 April 2026, the threshold for full 100% relief will increase to £2.5 million per person. For married couples or civil partners, this means up to £5 million in qualifying assets can be passed on entirely free from inheritance tax. Any value above that will still benefit from 50% relief, which is still a helpful reduction, but no longer a full exemption.
This is a significant step, however, these thresholds are not transferable between spouses in the same way as some other allowances, so the way your estate is structured and passed on still requires careful planning.
Why planning still matters
These new rules don’t eliminate inheritance tax, and they certainly don’t mean that planning is no longer necessary. The value of land, property, and business assets, especially where there is development potential or where the business has diversified, can easily exceed the new thresholds. Without a clear plan in place, your beneficiaries may still face large tax bills that could have been avoided or reduced.
Even outside of farming or trading businesses, inheritance tax continues to be a concern for many families. The standard nil-rate band (NRB) remains frozen at £325,000 per person until 2031, along with the residence nil-rate band (RNRB), which can apply when passing on a home to direct descendants, adds a further £175,000. Together, this gives individuals a maximum personal allowance of £500,000, or £1 million for a couple. Anything above this is taxed at 40%, unless it qualifies for reliefs such as APR or BPR.
What you can do now
The good news is that there are steps you can take to make the most of the reliefs and allowances available.
Start by getting a clear picture of your estate, this includes land, property, business interests, and personal assets. It’s especially important to understand what qualifies for APR or BPR, and whether the structure of your business or farm will meet the conditions for these reliefs in 2026 and beyond.
Gifting is another valuable tool. Each person has an annual exemption of £3,000, and unused allowances can be carried forward one year. Small gifts of up to £250 per person are also exempt, and regular gifts made from surplus income, such as helping children or grandchildren with ongoing costs, can be exempt if they form part of your normal expenditure.
Larger lifetime gifts may be classified as Potentially Exempt Transfers (PETs). If you survive seven years after making the gift, it falls outside your estate for inheritance tax purposes. If you pass away sooner, some or all of the gift may still be taxed, though tapering relief may reduce the amount owed if more than three years have passed.
IHT tapering relief also applies to PETs that are in excess of an individual’s NRB, and they pass away after 3 years of the gift being made which is outlined in the table below.
| Years between Gift and Death | Effective rate of IHT |
|---|---|
| More than 3 but not more than 4 | 32% |
| More than 4 but not more than 5 | 24% |
| More than 5 but not more than 6 | 16% |
| More than 6 but not more than 7 | 8% |
Trusts and whole-of-life insurance policies are also options worth exploring. A whole-of-life policy, written into trust, can provide a lump sum to cover any IHT liability, helping to protect your estate and avoid a forced sale of assets. Trusts, meanwhile, can be an effective way to retain control over how assets are passed on, although the rules around them can be complex.
Farmers, business owners, and the bigger picture
Although the recent reforms were prompted largely by concerns from the farming community, it’s important to remember that these changes affect business owners more broadly as well. Whatever your business, BPR may apply, but only if the business is actively trading and meets qualifying criteria. Investment-heavy businesses, or those holding significant non-trading assets like rental properties, may not qualify in full.
For farmers, assets like livestock and equipment don’t fall under APR, but they may qualify for BPR instead. Development value of land is also excluded from APR, which can lead to unexpected liabilities. If your farm is diversified into areas such as tourism or renewable energy, it’s worth reviewing how these activities might affect your overall eligibility for relief.
How we can support you
At The Private Office, we’re here to help you understand the full picture of your estate, explore your options, and put a clear plan in place that reflects your values and goals. Whether you’re thinking about the future of your farm, your business, or simply how to best support your family, we can guide you through the available reliefs, allowances, and strategies to ensure your legacy is protected.
We offer a free initial consultation with one of our expert advisers, where we can talk through your concerns and identify opportunities to keep more of your wealth for your loved ones.
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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.
The Financial Conduct Authority (FCA) does not regulate estate planning, tax or trust advice.
The information contained in this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.
