Major Boost for family farms as inheritance tax relief threshold rises to £2.5m

Farmers and rural business owners received a significant update this week as the UK government confirmed a major shift in how Agricultural Property Relief (APR) and Business Property Relief (BPR) will apply from April 2026.

The threshold at which 100% relief is available will rise from £1 million to £2.5 million per estate, allowing couples to pass on up to £5 million in qualifying assets before inheritance tax becomes due.

The move follows months of concern from farming families and rural businesses after the 2024 Budget announced wide‑ranging reforms to APR and BPR. Many feared that the original £1 million cap would leave ordinary family farms facing unexpected tax bills, particularly where land values have risen sharply in recent years.

After reviewing feedback from farmers, landowners and rural advisers, the government has opted to raise the threshold substantially. The aim is to protect the vast majority of working farms while still ensuring that the largest estates contribute more.

Independent analysis suggests the higher threshold will have a dramatic impact:

• The number of estates affected by APR reforms in 2026–27 is expected to halve, falling from 375 to 185.
• Most farming families will see inheritance tax bills fall by hundreds of thousands of pounds compared with the original proposal.
• Estates claiming only BPR (excluding those holding AIM shares) will see a one‑third reduction in those affected.
• Around 85% of estates claiming APR are forecast to pay no additional inheritance tax at all under the revised approach.

For many family farms – particularly mixed and livestock holdings where land values are high relative to income – this shift could be the difference between passing the business on intact or being forced to sell assets to meet tax liabilities.

Environment Secretary Emma Reynolds emphasised the importance of protecting working farms, describing farmers as “at the heart of our food security and environmental stewardship.” She highlighted that raising the threshold to £2.5 million ensures “ordinary family farms” are shielded from additional tax burdens, while larger estates continue to contribute proportionately more.

The government will introduce the amendment to the Finance Bill in January, with the new rules taking effect from 6 April 2026. Importantly, the transferable allowance means surviving spouses or civil partners—including those widowed before the policy change—will be able to pass on up to £5 million of qualifying assets tax‑free, in addition to existing nil‑rate bands.

For most farming families, the revised relief threshold will come as a welcome reassurance. It reduces the risk of forced sales, protects succession plans, and offers greater certainty at a time when rural businesses face rising costs and volatile markets.

In effect, a married couple or civil partners can pass on a farm worth up to £5.65 million tax free, by combining two £2.5 million agricultural/business property allowances and two £325,000 nil‑rate bands that can be transferred between them on death.

However, advisers note that the reforms still represent a significant shift from the previously unlimited reliefs. Larger estates, diversified businesses, and those with complex ownership structures may still face new tax considerations and should review their succession planning well ahead of April 2026.