Changes to agricultural and business property reliefs for inheritance tax

What is inheritance tax?

Inheritance tax is a tax charged on the estate of someone who has died.

Inheritance tax is charged at a 40% rate if the estate of a deceased person exceeds a threshold, known as the nil-rate band, set at £325,000.

What are inheritance tax reliefs?

An inheritance tax relief increases the overall value of assets that is tax-exempt, or reduces the value of an asset, therefore reducing the amount of tax payable.

There are several important inheritance tax reliefs, such as the spousal relief, in addition to the nil-rate band.

Among these reliefs, agricultural property relief (APR) and business property relief (BPR) allow estates to reduce the value of eligible agricultural or business property for inheritance tax.

Depending on certain criteria, relief is available at a 100% or 50% rate. 100% relief means that the entire asset is exempt from inheritance tax. From April 2026, 100% relief is only applicable to the first £2.5 million of combined agricultural and business property, following changes announced by the Labour government in October 2024.

How many estates claim APR and BPR?

In 2022/23, 1,730 estates claimed APR and 3,840 estates claimed BPR. In 2021/22, APR cost the Treasury around £0.6 billion and BPR cost the Treasury around £1.1 billion.

The majority of the cost of the reliefs goes towards claims for assets worth over £1 million.

What changes have been announced since Autumn Budget 2024?

At Autumn Budget 2024, the Labour government announced that, from April 2026, the availability of 100% relief for agricultural and business property would be capped. Assets eligible for 100% APR and assets eligible for 100% BPR would qualify for full relief up to a sum of £1 million. 50% relief would apply thereafter. The government is proposing to make assets eligible for BPR and APR (added together) count towards the £1 million cap.

The government has said that the majority of estates claiming APR and BPR will not be affected by these changes, and that the changes are intended to target a wealthy minority of estates.

At Budget 2025, the government partially amended its original proposals and announced that the £1 million allowance would become transferable between spouses and civil partners. This is in line with the nil-rate band and residence nil-rate band.

On 23 December 2025, the government announced the allowance would increase from £1 million to £2.5 million per estate.

Legislation

The policy became law after the Finance Act 2026 received Royal Assent. Section 65 and schedule 12 of the act make provision for these changes.

After Budget 2025, the government introduced ‘ways and means’ resolutions to obtain the Commons’ agreement to introduce tax measures in the Finance Bill. Among these there was a resolution allowing the government to reform APR and BPR. The House divided on this resolution on 2 December 2025. The resolution was agreed to (327 ayes to 182 noes). Following, the Finance (No. 2) Bill 2024-26 was introduced. Clause 62 and schedule 12 of the bill (as amended in Committee) would make provision for these changes. This clause and schedule were debated in Committee of the whole House on 12 January 2026. The House agreed to government amendments to change the allowance from £1 million to £2.5 million. Though several amendments and new clauses were tabled by opposition parties, none were agreed to.

Similar clauses moved by opposition parties were also negatived during the bill’s report stage on 11 March 2026.

What effects are the changes expected to have?

In December 2025, HM Revenue and Customs (HMRC) estimated that around 1,100 estates would pay more tax following the policy change. 185 estates including a claim for APR would be affected. This compares to the original impact assessment’s estimate of around 2,000 estates that would pay more tax, of which 520 would contain an APR claim. The numbers are lower primarily due to the government’s changes to its policy, which reduces the number of estates potentially affected.

Originally, the government estimated it would raise £520 million from its policy in 2029/30. In December 2025, it revised its estimate to £300 million 2029/30.

What has been the reaction to the changes?

Members of opposition parties have reacted negatively to the announcement, which has been a topic of sustained debate in the House of Commons since the 2024 Autumn Budget. The Environment, Food and Rural Affairs Select Committee also dedicated part of its report The Government’s vision for farming to the proposed changes to APR and BPR, and recommended the government postponed its commencement.

Some economic think tanks, like the Institute for Fiscal Studies (IFS), broadly agree with the changes to APR and BPR. The IFS’ position is that assets should be taxed in a similar way, and by giving special treatment to agricultural and business property, the tax system favours certain types of assets over others.

Agricultural organisations, such as the Country Land and Business Association have argued that the changes to APR and BPR would have a negative effect on farming businesses, and could affect around 70,000 farms. The National Farmers’ Union argues the reforms would have significant negative consequences for small working farms.

Professional bodies such as the Chartered Institute of Taxation (CIOT) and the Institute of Chartered Accountants in England and Wales have also expressed concern at how administratively burdensome it would become to value assets and calculate potential liabilities, even if there is no tax to pay.

Ahead of Budget 2025, the CIOT has suggested a transitional gifting rule to support older farmers. The Centre for the Analysis of Taxation (CenTax) has suggested a Minimum Share Rule whereby estates mostly composed of agricultural and/or business property would receive full relief up to £5 million. The latter in particular has been proposed by many MPs to the government as a viable alternative to the existing proposals.

Stakeholders have welcomed the Chancellor’s Budget 2025 announcement that the £1 million allowance would become transferable between spouses and civil partners but have generally said the amendments did not go far enough. Following the government announcement that the allowance would increase to £2.5 million per estate, NFU President Tom Bradshaw welcomed the change, and said it would represent “a huge relief for many.”