The government has announced a significant increase in the threshold for Agricultural and Business Property Reliefs, raising it from £1 million to £2.5 million from April 2026. This change aims to protect more family farms and businesses from inheritance tax, with couples able to pass on up to £5 million in qualifying assets tax-free.
Key Takeaways
- The threshold for Agricultural and Business Property Reliefs will increase to £2.5 million per estate from April 2026.
- Spouses or civil partners can now pass on up to £5 million in qualifying assets tax-free.
- This adjustment is a response to concerns raised by the farming community and businesses.
- The reform is expected to halve the number of estates affected by changes to Agricultural Property Relief.
Increased Threshold to Protect More Estates
The government has listened to feedback from farmers and businesses regarding reforms to Agricultural and Business Property Reliefs, originally announced at Budget 2024. The new threshold of £2.5 million per estate will ensure that only the largest estates are subject to higher inheritance tax bills. This adjustment is projected to halve the number of estates claiming Agricultural Property Relief (including those also claiming Business Property Relief) that are affected by the reforms, reducing the figure from 375 to 185 in 2026-27. Overall, around 85% of estates claiming agricultural property relief are forecast to pay no additional inheritance tax.
Support for Farming and Business Communities
Environment Secretary Emma Reynolds stated, "Farmers are at the heart of our food security and environmental stewardship, and I am determined to work with them to secure a profitable future for British farming." She added, "We have listened closely to farmers across the country and we are making changes today to protect more ordinary family farms." The increase in the individual threshold to £2.5 million means couples can now pass on estates worth up to £5 million without incurring inheritance tax on qualifying agricultural and business assets, in addition to existing nil-rate bands. This allowance will be transferable between spouses or civil partners, even if one partner passed away before the policy’s introduction.
Maintaining Core Principles
While increasing the threshold, the government maintains the principle that the most valuable agricultural and business assets should not receive unlimited relief. The reforms, which will be introduced via an amendment to the Finance Bill in January, will continue to ensure that qualifying agricultural and business assets are taxed at a significantly lower effective rate than most other assets. The revised approach aims to balance concerns raised with the need to generate revenue for public services. The cost of these changes will be assessed by the Office for Budget Responsibility.
Sources
- Inheritance tax reliefs threshold to rise to £2.5m for farmers and businesses, GOV.UK.
- Government lifts agricultural and business tax relief to £2.5m, Accountancy Today.
- Changes to agricultural and business property reliefs for inheritance tax, The House of Commons Library.
