Government Shifts Inheritance Tax Plans for Farms and Family Businesses After Rural Pushback

For decades, Agricultural Property Relief (APR) and Business Property Relief (BPR) have been vital tools for farming families and small business owners. These reliefs were designed to prevent inheritance tax from forcing the sale of productive assets such as land, machinery, livestock, or a family business built up over generations.

Under the long‑standing rules, qualifying agricultural or business assets could receive up to 100% relief, allowing them to pass to the next generation without triggering an inheritance tax bill.

Last year, however, the government announced plans to overhaul these reliefs. Ministers argued that a cap was needed to modernise the system and ensure the reliefs were targeted more effectively. The original proposal was to introduce a £1 million cap on the value of assets eligible for the full 100% relief, with any excess qualifying only for 50% relief. These changes were due to take effect from 6 April 2026.

The announcement caused widespread concern, particularly in rural areas where even average‑sized farms can easily exceed £1 million in value. Professional bodies warned that the cap, risked placing significant pressure on family farms and small businesses, arguing it did not reflect the true value of modern agricultural and business assets.

Following sustained lobbying from farming unions, rural groups and professional advisers, the government has now announced a major concession. The cap for full 100% relief will be increased from £1 million to £2.5 million per individual. This is a substantial shift and will provide much‑needed breathing room for many families.

The revised rules will still take effect from 6 April 2026. Each individual will have a £2.5million allowance for 100% APR/BPR, with any excess continuing to qualify at the reduced rate of 50%. The allowance will refresh every seven years for individuals and every ten years for trusts, offering additional flexibility for long‑term planning.

Even with the improved allowance, now is an ideal time to review your estate planning. The new rules create opportunities, but they also introduce new considerations.

It’s worth taking a closer look at:

• Whether your assets genuinely qualify for APR or BPR — not all farming or business activities meet the criteria, and diversification can sometimes reduce eligibility.
• How the £2.5 million allowance interacts with your long‑term plans — particularly if you expect asset values to rise or intend to pass assets on during your lifetime.
• Whether your current business structure is still the most efficient — partnerships, company shares and joint ownership arrangements can all affect how reliefs apply.
• The timing of any gifts or transfers — with the allowance refreshing every seven years for individuals, planning ahead can make a significant difference.

Taking stock now will help ensure you are making the most of the reliefs available and avoiding any unexpected tax exposure when the new rules take effect in April 2026.

These reforms are a reminder that inheritance tax reliefs are evolving, not static. The increased cap is welcome, but it also highlights the importance of keeping plans under regular review. With the right preparation, families can protect their businesses, preserve their assets and plan with confidence for the next generation.

Paul Fitzgerald is a Client Manager at Abac Chartered Accountants.

This article is for general information only. You are recommended to seek professional advice before taking action on the basis of the contents of this article.