Major changes to inheritance tax relief for farms and family businesses will come into force from April 2026, after the government changed its plans to reform to Agricultural Property Relief (APR) and Business Property Relief (BPR), following sustained lobbying by the NFU and others.
Under the new rules, the full 100% inheritance tax relief will apply only to the first £2.5 million of combined agricultural and business assets in an estate, rather than £1m as previously planned. Assets above this level will qualify for 50% relief, resulting in an effective inheritance tax rate of up to 20%, rather than the standard 40%.
National Farmers’ Union president Tom Bradshaw said the change would come as a “huge relief” to many family farms following months of campaigning. He said the original proposals had caused significant anxiety within the farming community, particularly among older farmers who had planned to pass on their businesses under the previous rules.
Bradshaw said the NFU had shifted its focus to mitigating the impact of the reforms once it became clear they would go ahead, and welcomed what he described as a more pragmatic approach from government. He said discussions with Prime Minister Sir Keir Starmer and Defra Secretary Emma Reynolds had helped highlight the human impact of the proposals, and that the changes announced would bring the policy closer to protecting family farms.
Any inheritance tax due on qualifying assets above the threshold can be paid in equal instalments over 10 years, with no interest charged.
The £2.5 million allowance will be transferable between spouses and civil partners, allowing couples to pass on up to £5 million of qualifying agricultural or business assets without paying inheritance tax. This is in addition to existing inheritance tax allowances, including the £325,000 nil-rate band available to all estates. Any unused allowance on the death of one spouse or civil partner can be transferred to the survivor, in the same way as the nil-rate band.
The government said the reforms will affect only a small number of estates. Treasury estimates suggest that up to 185 estates claiming agricultural property relief, including those also claiming business property relief, will pay more inheritance tax in 2026–27. Around 85% of estates claiming APR in that year are forecast not to pay any additional inheritance tax as a result of the changes.
Full inheritance tax exemptions for transfers between spouses and civil partners will continue to apply, and gifts made more than seven years before death will remain outside the scope of inheritance tax. The changes to Agricultural Property Relief and Business Property Relief are due to take effect from 6 April 2026.
Bradshaw thanked Labour backbench MPs who raised concerns, as well as opposition parties and the wider public, more than 270,000 of whom supported the NFU’s campaign. While describing the past year as challenging, Bradshaw said the announcement offered greater optimism for the future of British farming.