The government has announced a significant expansion to Inheritance Tax (IHT) reliefs for farms and family businesses, increasing the proposed allowance for 100% agricultural property relief (APR) and business property relief (BPR) from £1 million to £2.5 million.
The change represents a significant softening of reforms first unveiled at the Autumn Budget 2024, following sustained pressure from rural groups, business owners and professional bodies.
From 06 April 2026, access to 100% APR and BPR will be capped by a new lifetime-style allowance. Once that allowance is exceeded, qualifying agricultural and business assets will still receive relief, but only at a reduced rate of 50%. While the original policy set the allowance at £1m, the government confirmed on 23 December 2025 that it would be increased to £2.5m. The allowance will apply to both individuals and trusts and will reset every seven years for individuals and every ten years for trusts.
How the new allowance will work
Under the revised framework, individuals will be able to pass on up to £2.5m of qualifying agricultural and business assets with complete IHT relief. Any value above that threshold will continue to qualify for APR or BPR, but at a rate of 50%, rather than the current 100%. This represents a structural shift away from unlimited relief, aimed at targeting support more narrowly while still protecting succession planning for most family enterprises.
The allowance will be refreshed on a rolling basis, rather than being a one-time lifetime limit. This means that business owners making transfers several years apart can benefit from the relief more than once, provided sufficient time has passed between chargeable events. Trusts will be subject to a longer refresh period, reflecting their distinct role in long-term estate planning.
One of the most notable aspects of the announcement is the treatment of couples. The government has confirmed that the allowance will be transferable between spouses and civil partners, allowing couples to benefit from up to £5m of assets qualifying for 100% APR or BPR. This sits alongside existing IHT allowances, including the standard nil-rate band and, where relevant, the residence nil-rate band.
The press release also makes clear that this treatment will apply to surviving spouses or civil partners who were widowed before the policy is introduced. This mirrors the current approach to unused nil rate bands and is designed to avoid penalising families who could not plan for the new regime in advance.
Background to the reforms and next steps
The APR and BPR reforms were first announced as part of a broader package of IHT changes intended to modernise the tax system and focus reliefs on their original purpose, supporting genuine trading businesses and working farms. However, the initial proposal to cap 100% relief at £1m attracted widespread criticism, particularly from farming organisations, which argued that land values alone could easily exceed that threshold without reflecting significant liquidity.
Since the Autumn Budget, the government has already made several concessions. These include allowing the allowance to be shared between spouses and civil partners and clarifying that trusts will have their own allowance rather than being excluded altogether. The increase to £2.5m is the most substantial revision so far and suggests a willingness to respond to concerns about unintended consequences.
Ministers have said the higher threshold will “significantly reduce the number of farms and business owners facing higher Inheritance Tax bills”, ensuring that the reforms affect only the most prominent estates. In practice, this means that many family-run businesses and farms are likely to remain largely unaffected, particularly when ownership is shared between spouses or when other allowances are available.
Further technical detail is expected in January, when the changes are formally introduced to the Finance Bill 2025–26. This is likely to include clarification on transitional rules, valuation issues and how the allowance interacts with existing anti-avoidance provisions.
While the reforms still represent a tightening of IHT reliefs compared with the current regime, the revised allowance marks a clear shift in tone. For advisers and business owners, the focus now turns to understanding how the new structure will operate in practice and whether further adjustments emerge as the legislation moves through Parliament.
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If you want more information on the changes to IHT for farms and family businesses, or advice and help with IHT in general, please contact us.
