The government has announced a significant increase in inheritance tax reliefs for farmers and business owners. From April 2026, the Agricultural and Business Property Reliefs threshold will rise from £1 million to £2.5 million, allowing spouses and civil partners to pass on up to £5 million in qualifying assets tax-free, in addition to existing allowances.
This move follows feedback from the farming and business communities regarding reforms introduced in Budget 2024, and aims to protect more estates while maintaining fairness for the largest agricultural and business holdings.
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Government Response to Industry Concerns
Following consultations with farmers and business owners, the government confirmed that the reforms will:
- Halve the number of estates affected by the changes, from 375 to 185 for those claiming Agricultural Property Relief.
- Reduce the number of estates claiming only Business Property Relief by a third, focusing support on those most in need.
- Ensure 85% of estates claiming agricultural property relief pay no additional inheritance tax under the new rules.
Environment Secretary Emma Reynolds said:
“Farmers are at the heart of our food security and environmental stewardship. By increasing the individual threshold from £1 million to £2.5 million, couples with estates of up to £5 million will now pay no inheritance tax, while larger estates contribute more. This supports family farms and trading businesses that form the backbone of rural communities.”
Key Changes to Reliefs
The planned amendments to the Finance Bill 2025 will include:
- Increasing the threshold for 100% Agricultural and Business Property Relief from £1 million to £2.5 million per estate.
- Continuing 50% relief for qualifying assets above this level.
- Making the allowance transferable between spouses, enabling a surviving spouse or civil partner to pass on up to £5 million tax-free, in addition to the existing nil-rate bands.
- Ensuring the changes also benefit widowed spouses or civil partners who lost their partner before the policy’s introduction.
These reforms aim to balance support for family farms and businesses while ensuring that the wealthiest estates contribute proportionally.
Impact on Estates and Tax
The increase in the threshold is expected to:
- Reduce the number of estates paying higher inheritance tax due to the reforms from around 2,000 (forecast in Autumn Budget 2024) to 1,100 in 2026-27.
- Lower the number of agricultural property relief estates affected from 375 to 185.
- Reduce estates claiming only business property relief affected from 325 to 220.
Overall, the changes ensure that most estates benefit, with many families saving hundreds of thousands of pounds in inheritance tax. The treatment of AIM shares remains unaffected.
Wider Support for Farming and Rural Communities
The government continues to provide support for farming and food production, including:
- Record £11.8 billion funding for sustainable farming and food production over this Parliament.
- Annual investment of £2.7 billion from 2026/27 for farming and nature recovery.
- Expansion of Environmental Land Management (ELM) schemes, rising from £800 million in 2023/24 to £2 billion by 2028/29, covering half of England’s farmed land.
- Continuation of an 80% tax discount on red diesel, reducing fuel costs for farm operations.
These measures complement the new Farming and Food Partnership Board, designed to strengthen collaboration across farming, food production, retail, finance, and government, and planning reforms that simplify approvals for farm expansion, boosting rural growth.
What This Means for Families
With these changes, a married couple or civil partners can now pass on a farm worth up to £5.65 million tax-free, combining:
- Two £2.5 million agricultural/business property allowances.
- Two £325,000 transferable nil-rate bands.
The reforms aim to protect family farms and small businesses while ensuring that the tax system remains fair and targeted at larger estates.
Frequently Asked Questions
What’s changing?
The Agricultural and Business Property Relief threshold rises from £1M to £2.5M per estate from April 2026.
How does this affect couples?
Spouses/civil partners can pass on up to £5M in qualifying assets tax-free.
When does it start?
6 April 2026, via the Finance Bill 2025.
Who benefits?
Family farms and small-to-medium businesses; most estates pay no extra tax.
Impact on tax bills?
Fewer estates will face higher inheritance tax; many families save hundreds of thousands.
Does it apply retrospectively?
Yes – widowed spouses or civil partners benefit too.
Conclusion
The government’s decision to raise the Agricultural and Business Property Relief threshold to £2.5 million marks a significant step in supporting family farms and rural businesses. By allowing couples to pass on up to £5 million in qualifying assets tax-free, the reforms protect the majority of estates while ensuring larger holdings contribute fairly.
