Inheritance tax relief threshold rises to £2.5m for farmers and businesses

Farmers, landowners and business owners are set to benefit from a significant change to inheritance tax rules. From April 2026, the combined inheritance tax relief threshold for Agricultural Property Relief (APR) and Business Property Relief (BPR) will increase from £1 million to £2.5 million per individual.  

This change is expected to reduce the number of estates affected by inheritance tax when passing on a family farm. For married couples or civil partners, this potentially allows up to £5 million of qualifying assets to be transferred between generations with 100% inheritance tax relief, before considering any nil rate bands.  

What is the inheritance tax threshold for farmers? 

Under the new rules from April 2026:  

• Each individual can claim up to £2.5 million of combined agricultural inheritance tax relief and business property relief inheritance tax 

• Married couples and civil partners can transfer any unused allowance, meaning up to £5 million of qualifying assets could pass free of inheritance tax 

• Assets exceeding the £2.5 million threshold will still benefit from 50% relief, rather than the full 100%  

• Any unused allowance will be transferable between spouses or civil partners, even if the first death occurs before 6 April 2026  

This increase provides greater certainty for family farms, rural estates, and owner-managed businesses where asset values have increased significantly over time.  

What is Agricultural Property Relief (APR)? 

Agricultural Property Relief (APR) is a type of inheritance tax relief available on qualifying farming agricultural property including:  

• Farmland and pasture 

• Farmhouses (where occupation and character conditions are met) 

• Agricultural buildings 

• Some farm cottages and ancillary land  

APR can reduce the inheritance tax on farmland by up to 100%, provided the conditions are met. This makes it a key consideration when planning family farm succession.  

How does Agricultural Property Relief work?  

APR applies where:

• The property is occupied for agricultural purposes 

• Ownership and occupation conditions are satisfied (usually two years if occupied by the owner, or seven years if let)  

• The property qualifies as agricultural in both character and use  

APR does not usually apply to non-agricultural value, such as development potential, which is why careful planning is essential.  

What is Business Property Relief (BPR)? 

Business Property Relief (BPR) applies to certain qualifying business assets, including:  

• Shares in unlisted companies  

• Interests in partnerships 

• Certain business assets used in a trading business 

• Some farming machinery and business-related assets   

Like APR, BPR can provide up to 100% inheritance tax relief, depending on the nature of the business and the assets involved.  

How does Business Property Relief work?  

BPR generally applies where:  

• The business is trading, rather than investment-based 

• The assets have been owned for at least two years  

• The business structure and shareholdings meet the qualifying criteria  

For farmers and landowners with diversified operations, it’s important to understand which assets fall under APR versus BPR.  

Who qualifies for inheritance tax relief? 

Inheritance tax relief for family farms under APR and BPR may be available to those who own qualifying assets, including: 

• Farmers and landowners  

• Business owners and shareholders 

• Partners in trading partnerships 

• Family farm owners managing agricultural property  

Eligibility depends on meeting the conditions for the type of asset, including occupation, use, and ownership duration.  

Inheritance tax planning for farmers and businesses  

Effective planning can help reduce inheritance tax liability. Typical approaches include:  

• Structuring ownership to maximise APR and BPR 

• Drafting Wills that reflect farm tenancies, partnerships, and business interests 

• Using trusts, including Business Discretionary Trusts, where appropriate 

• Reviewing arrangement regularly as asset values or legislation changes  

Get in touch with us today to discuss how the new inheritance tax threshold may affect your farm, how inheritance tax relief can work for your farm or business, and reviewing your Will.

Our lawyers are experienced in complex estate planning including drafting Wills for business owners and landowners through Business Discretionary Trusts as well as incorporating farm tenancies and substantial cash assets.

Call us on 024 7663 2121 or email us at info@bandhattonbutton.com.