TLDR (too long didn’t read): What you need to know
From April 2026, the government is changing how inheritance tax relief works for agricultural and business assets. The headline news is that estates will now be able to claim full inheritance tax relief on up to £2.5 million of qualifying farming and business assets, rising to £5 million for married couples and civil partners. Above this level, relief will still apply, but at a reduced rate. For most family farms and owner-managed businesses, this significantly reduces the risk of an unexpected inheritance tax bill, but it does make forward planning more important than ever.
Why inheritance tax reliefs matter to business owners
Inheritance tax is often seen as a distant problem, something to think about later. For farmers and business owners, it can be very real and very personal. Many farms and trading businesses are asset-rich but cash-poor. Land, buildings, machinery or shares can carry high values on paper, while day-to-day profits remain modest.
Without reliefs, inheritance tax is charged at 40 percent on estates above the standard £325,000 nil-rate band. That could force families to sell land, shares or even the business itself simply to fund a tax bill. Agricultural Property Relief (APR) and Business Property Relief (BPR) exist to prevent that outcome and support continuity of family businesses across generations.
What has changed and when
The changes apply from April 2026 and follow a significant policy rethink after widespread concern from farming communities and family businesses.
Under the revised rules:
• Each estate can claim 100 percent inheritance tax relief on up to £2.5 million of qualifying agricultural and business assets combined
• Any qualifying assets above £2.5 million will receive inheritance tax relief at 50 percent
• The £2.5 million allowance is transferable between spouses and civil partners, meaning a couple can potentially pass on up to £5 million tax-free
• These reliefs sit alongside other inheritance tax allowances, including spousal exemption and the nil-rate band
This replaces earlier proposals that would have capped full relief at £1 million, which many felt would have affected ordinary family farms and businesses.
What counts as qualifying assets
Agricultural Property Relief generally applies to land and buildings used for farming, as well as some associated assets, provided certain ownership and occupation conditions are met.
Business Property Relief can apply to:
• Shares in unlisted trading companies
• Interests in partnerships or sole trades
• Business assets used in a trading business
Investment businesses, such as those mainly holding property or investments, are usually excluded.
Importantly, the same asset cannot qualify for both APR and BPR. Each is assessed separately, but the £2.5 million cap applies to the combined value of assets qualifying for full relief.
What this means in practice for farmers
For many family farms, this change offers genuine reassurance. Based on current estimates, the majority of working farms will not face any inheritance tax charge under the new threshold. A single farm estate can pass on up to £2.5 million of qualifying assets at 100 percent relief. For farming couples, that figure doubles.
Above the threshold, the effective tax rate is still significantly lower than standard inheritance tax. A 50 percent relief followed by a 40 percent tax rate means an effective rate of 20 percent on the excess, rather than 40 percent on the full value.
That said, farms with high land values, significant machinery, or mixed-use arrangements should not assume they are unaffected. Valuations, ownership structures and tenancy arrangements all matter.
What this means for business owners outside farming
Although much of the media coverage has focused on agriculture, these changes are equally relevant to non-farming business owners. If you own a trading company, partnership or sole trade, the value of that business may now contribute towards the £2.5 million cap on full relief. For growing businesses, especially those reinvesting profits rather than extracting them, business value can rise quickly. Without planning, it is possible to drift over the threshold without realising.
This is particularly relevant for:
• Family-owned trading companies
• Businesses with valuable intellectual property or goodwill
• Groups with multiple trading entities
• Owners holding shares personally rather than via trusts
Why planning matters more now
The new threshold is generous compared to earlier proposals, but it introduces complexity where previously there was simplicity. Historically, many estates relied on unlimited 100 percent relief. From April 2026, there is a clear ceiling.
Good planning is no longer just about minimising tax. It is about:
• Ensuring the right assets qualify for relief
• Structuring ownership efficiently between spouses or family members
• Avoiding unintended consequences for successors
• Protecting the long-term viability of the business
This is not about aggressive tax planning. It is about clarity, certainty and continuity.
Common pitfalls to watch out for
There are a few areas where we expect business owners to be caught out:
• Assuming all assets qualify for relief when some may not
• Holding surplus cash or investments inside trading companies
• Not reviewing shareholder or partnership agreements
• Relying on outdated valuations
• Leaving planning too late to act meaningfully
Inheritance tax is a generational issue. Decisions made now affect future options.
Not entirely. While many estates will now fall below the threshold, larger or more complex estates may still face a tax charge. Planning is still important.
Yes. The relief applies to qualifying business and agricultural assets and sits alongside other inheritance tax allowances.
Potentially, yes. If both spouses qualify and allowances are fully transferable, a combined £5 million of qualifying assets can receive 100 percent relief.
Assets above the threshold receive 50 percent relief. Inheritance tax is then charged at 40 percent on the remaining value.
Lifetime gifts can still be effective, but special rules apply, particularly where death occurs within seven years. Advice is essential before taking action.
No. Under the new rules, shares in unlisted companies such as AIM will generally only qualify for 50 percent relief.
Yes, trusts are affected and the rules are complex. If you have assets held in trust, this should be reviewed carefully.
Final thoughts
The increase in the inheritance tax relief threshold to £2.5 million is meaningful and welcome. It reflects a recognition that family farms and trading businesses are central to the UK economy and communities. However, it does not remove the need for careful, considered planning. In fact, it makes it more important to understand where you stand and what options are available.
If you would like help understanding how the new inheritance tax reliefs apply to your business or family situation, you can get in touch with our team. We offer clear, practical advice that focuses on long-term stability and informed decision-making.
