In a significant policy shift following widespread backlash, the government has announced an increase in the inheritance tax (IHT) allowance for agricultural property relief (APR) and business property relief (BPR). The threshold for relief will rise from £1 million to £2.5 million, a move aimed at easing the burden on farmers and business owners.

What Changed?

Before the Autumn 2024 Budget, business and agricultural assets enjoyed full exemption from IHT under the following conditions:

• The business passed the “Wholly or Mainly” test (not primarily investment-based).
• 100% Business Relief applied to:
  • Shares in unlisted companies
  • Interests in a business (including unincorporated)
  • Ownership for at least two years

This meant no IHT on death or lifetime transfers of qualifying business property.

However, reforms announced in Autumn 2024 introduced a cap effective from April 2026:

• 100% relief restricted to £1 million
• 50% relief on amounts above £1 million
• Unused allowance not transferable to a spouse

This sparked protests, including the memorable tractor convoy that brought farmers to London in December. In response, the government has now raised the cap to £2.5 million, stating this will “significantly reduce the number of farms and business owners facing higher inheritance tax bills under the reforms.” Further details will be confirmed in the Finance Bill 2025-26, expected later this month.

What Does This Mean for You?

While this increase is welcome news, careful financial planning remains essential. Even with higher allowances, strategies such as gifting, trusts, and succession planning can help minimise your IHT liability and protect your legacy.

If you own a business or agricultural land, now is the time to review your plans. Speak to us today to ensure your estate is structured efficiently under the new rules.

Tax treatment depends on individual circumstances and may change in the future. These proposals remain subject to parliamentary approval.