Agricultural and business property reliefs

On 30 October, the Chancellor announced that the government will reform agricultural property relief (APR) and business property relief (BPR) from 6 April 2026. 

At present, relief applies to agricultural property and certain businesses/interests in businesses at a rate of either 50% or 100%.

100% relief applies if:

• the property is in the owner's vacant possession, either because they occupy it themselves or they have the right to vacant possession within 12 months under the terms of any lease or licence
• the land is let, and the tenancy began on or after 1 September 1995.
• by concession: The land is let, and certain conditions regarding vacant possession are met
• special rules apply to land let before 10 March 1981, and on the surrender and re-grant of pre-1 September 1995 protected tenancies.

50% relief is available in other cases.

Agricultural property means:

• agricultural land or pasture
• woodlands and buildings used in the intensive rearing of animals if they are being used with agricultural land or pasture
• grazing land where you are responsible for the upkeep
• cottages, farm buildings and farmhouses, and any land occupied with them, if they are of a character appropriate to the property.

The government has confirmed it will extend the existing scope of agricultural property relief from 6 April 2025 to land managed under an environmental agreement with, or on behalf of, the UK government, devolved governments, public bodies, local authorities, or relevant approved responsible bodies.

The new rates of relief

For transfers on or after 6 April 2026:

First £1m:

• the existing 100% rate of relief will continue to apply to the first £1m of property that qualifies for business property relief and agricultural property relief
• the 100% relief rate will remain unchanged where it currently applies, except for shares designated as ‘not listed’ on recognised stock exchange markets (such as the AIM), for which the relief rate will be 50%. This will not be affected by the new allowance
• the 50% relief rate will continue to apply where it currently applies, and it will also remain unaffected by the new allowance.

If the total value of the qualifying property to which 100% relief applies is more than £1m, the allowance will be applied proportionately across the qualifying property. For example, if there was agricultural property of £3m and business property of £2m, the allowance for the agricultural property and the business property will be £600,000 and £400,000 respectively.

Assets automatically receiving 50% relief will not use up the allowance and any unused allowance will not be transferable between spouses and civil partners.

The allowance covers the following transfers:

• property in the estate at death
• lifetime transfers to individuals in the seven years before death (failed ‘potentially exempt transfers’)
• chargeable lifetime transfers where there is an immediate lifetime charge, so for example when property is transferred into trust.

Where the rate of relief for the agricultural property or business property is at 50%, for example quoted shares in company giving the transferor control, the rate of relief will not be affected by the new allowance.

Over £1m:

• for any qualifying assets exceeding £1m, the existing 100% rate of relief will be reduced to 50% for the value above £1m
  For example, if an interest of £2m in shares of an unquoted company is transferred, the first £1m will attract 100% relief, while the second £1m will attract 50% relief. This would result in an inheritance tax liability of £200,000, translating to an effective inheritance tax rate of 10%, before applying any other exemptions or the nil-rate band
• the relief rate for shares designated as ‘not listed’ on the markets of recognised stock exchanges will remain at 50%
• the existing 50% relief rate will continue where it currently applies and will not be affected by the new allowance.

Lifetime transfers prior to 6 April 2026

The new rules will apply for lifetime transfers on or after 30 October 2024 if the donor dies on or after 6 April 2026. This prevents forestalling. For example, a lifetime gift of unquoted shares of £2m made on or after 30 October 2024 will be a failed potentially exempt transfer if the donor dies within seven years. 100% relief would apply to the first £1m and 50% to the next £1m under the new rules if the recipient owned the shares until the donor’s death and the donor’s death is on or after 6 April 2026.

The government has confirmed it will extend the existing scope of agricultural property relief from 6 April 2025 to land managed under an environmental agreement with, or on behalf of, the UK government, devolved governments, public bodies, local authorities, or relevant approved responsible bodies.

Nil-rate band and other exemptions

Estates will continue to benefit from the nil-rate band, residence nil-rate band, and other exemptions (such as for transfers between spouses and civil partners). Transfers to individuals more than seven years before death will continue to fall outside the scope of inheritance tax in the normal way.

Payment

Inheritance tax liabilities relate to the overall value of the estate so these can be paid from the proceeds following the disposal of other assets within an estate or by other means. Liabilities relating to agricultural and business property can currently be paid in equal annual instalments over 10 years in certain circumstances.

Examples

1. A farm owned by two people with its assets passed on the direct descendants

Two people who jointly own a farm will be able to pass on land and property valued up to £3m to a child or grandchild tax free. That is made up of £1m, where they combine their standard £500,000 tax-free allowances (£325,000 for nil-rate band + £175,000 for residence nil-rate band), and on top of that, an additional £1m tax-free allowance each for agricultural property inheritance.

Person 1: £325,000 + £175,000 + £1m

Person 2: £325,000 + £175,000 + £1m

Total passed on to direct descendant tax free: £3m.

2. A farm owned by two people and assets passed on to someone who is not a direct descendant.

If the assets are left to anyone else who is not a direct descendant there would no longer be access to the additional property tax-free allowance (£175,000 each).

Person 1: £325,000 + £1m

Person 2: £325,000 + £1m

Total passed on to non-direct descendant tax free: £2.65m

3. A farm owned by one person, the value of the farm worth £3m, assuming the nil rate band and residential nil rate band is used, and there is no spousal exemption. IHT due is calculated as follows:

• £1m agricultural property inheritance
• £2m covered by 50% exemption ie £1m
• IHT at 40% on £1 million is £400,000.

4. A farm owned by husband and wife, the value of the farm worth £3m, assuming the nil rate band and residential nil rate band is used. IHT due is calculated as follows:

• £1m each covered by agricultural property inheritance (ie £2m)
• £1m covered by 50% exemption ie £500,000
• IHT at 40% on £500,000 is £200,000.

Spouse exemptions

Full exemptions for transfers between spouses and civil partners continue to apply. This means that any agricultural and business assets left to a spouse or civil partner will be tax free. 

Following the death of a surviving spouse, an estate can pass on £1 million free of inheritance tax if they leave their residence to direct descendants. This includes children or grandchildren. 

Any transfers to individuals more than seven years before death will continue to fall fully outside the scope of inheritance tax, and the rate tapers down from three years after the transfer as follows:

• 3 to 4 years – 16%
• 4 to 5 years – 12%
• 5 to 6 years – 8%
• 6 to 7 years – 4%.

Practitioners should take this opportunity to advise their clients on how to best structure their business affairs to minimise IHT liability. By offering strategic guidance, practitioners can help ensure that the estate is arranged in a way that reduces the amount of IHT paid, ultimately benefiting the beneficiaries.

Further guidance

Read the summary of the changes to agricultural property relief

Find out how to pay inheritance tax in instalments