Inheritance tax and farms; an update 

Inheritance tax and farms; an update 

6th January 2026

Farmers received the welcome news before Christmas that the limit for Agricultural Property Relief (APR) was going to be increased.  Since the 1990s farmers have been able to claim APR on agricultural land and farm buildings used for the purposes of agriculture.  In some circumstances they were also able to claim Business Relief (BR) on assets that were used in the farming business, but which did not qualify for APR (e.g. livestock and machinery).  This has enabled farms to be passed down to the next generation without a large inheritance tax bill.

This changed in the 2024 budget when Rachel Reeves announced that from April 2026 APR and BR were to be capped at £1 million.  Whilst it would be possible to claim both reliefs on one estate, the total combined amount was capped at £1 million.   Any farming or business assets over and above that would be taxed at 20%.  This is half the normal rate of tax which is 40%.

This caused a lot of concern for many farmers.  Farming is usually an asset rich and cash poor business, with most of the value being in the land rather than cash in the bank.  In order to pay the inheritance tax bill, farmers would have been very likely to have had to sell some of their land.  Farmers tend to get very small returns on their assets, and a smaller farm is less viable. 

Many farmers have taken to the streets in protest, and this has received a lot of media coverage.  The National Farmers Union (NFU) have been campaigning for the last 14 months to get the proposed rules changed and they have been speaking to the government to explain the problems that a large inheritance tax bill would cause for many farmers.  There are people that invest in farmland for inheritance tax planning, but the people that were going to be hit most were the small family farms. There are already many younger people who choose not to follow in their parents’ footsteps and take on the family farm, and so the inheritance tax situation would not help this.

There was a small breakthrough in the November 2025 budget where it was announced that the £1 million relief could be transferred between spouses.  Under the original proposal if a farmer died and left everything to their spouse then there would be no inheritance tax to pay on the first death due to spouse exemption, but when the second person died and the farm passed to the next generation there would only be one allowance of £1 million available.  The change in the November budget meant that there would be a combined allowance of £2 million on the second death.  But due to the value of land most farms would still have been caught by inheritance tax.

However, there was welcome news on 23 December 2025 when the government announced that they were going to increase the APR and BR limit to £2.5 million and it can be transferred between spouses which means that a married couple could have a combined allowance of £5 million.  According to Emma Reynolds, the Secretary of State for Environment, Food and Rural Affairs, 85% of farming estates that claim APR won’t have to pay inheritance tax once the legislation is passed.  When being interviewed on Farming Today on BBC Radio 4, Tom Barshaw president of the NFU described it as a ‘massive sense of relief.’  This is a sentiment that will be echoed by many farmers. 

The change in BR will also help many small business owners.  Whilst the changes to BR did not get as much media coverage as the changes to APR, it is equally important that small businesses can continue to run without being crippled by inheritance tax.

Article written by Private Client Chartered Legal Executive Rachel Collett. If you require assistance with regards to Wills, estate administration or inheritance please contact our friendly team who will be happy to help.