Changing Inheritance Tax Rules For Farmers

In a significant turn of events for the British agricultural community, the government recently announced a major update to the proposed “Family Farm Tax.”

Following months of intense lobbying and high-profile protests, the threshold for 100% inheritance tax relief for farmers has been significantly increased. Below is an overview of the new rules as they stand for 2026.

The New Landscape: From £1m to £2.5m

When the reforms were first proposed in the 2024 Autumn Budget, the industry was shaken by a planned £1 million cap on Agricultural Property Relief (APR) and Business Property Relief (BPR).

However, as of late December 2025, the government has increased this individual threshold to £2.5 million.

Key Changes Effective from 6 April 2026:

• The £2.5m Allowance: The first £2.5 million of combined agricultural and business assets will remain 100% tax-free.
• The 50% Relief Rule: For any value exceeding the £2.5 million threshold, relief is reduced to 50%. This creates an effective tax rate of 20% on those excess assets (half of the standard 40% inheritance tax rate).
• 10-Year Payment Plan: To prevent the immediate sale of land, any tax due can be paid in interest-free instalments over a 10-year period.

How it Works for Families

One of the most vital victories for farming unions was the confirmation of transferability. This allows spouses and civil partners to combine their allowances, effectively doubling the protection for family-owned businesses.

Ownership Status	Maximum Tax-Free Threshold*
Individual Farmer	Up to £2.825m
Married Couple / Civil Partners	Up to £5.65m

 

*Note: These figures include the standard £325,000 Nil-Rate Band (NRB) available to every individual. If the farm includes a primary residence being passed to direct descendants, an additional Residence Nil-Rate Band (£175,000) may also apply, potentially pushing the tax-free limit for a couple over £6 million.

Why the Change?

The government stated the adjustment was made to “back the farms that are the backbone of rural communities” while still ensuring that very large, wealthy estates—often purchased by non-farmers for tax sheltering purposes—contribute to public finances.

Industry groups like the NFU and CLA have welcomed the higher threshold as a “huge relief,” noting that it will protect the vast majority of small and medium-sized family farms that would have been broken up under the original £1 million cap.

What Should Farmers Do Now?

Despite the higher threshold, the introduction of a cap marks the end of “unlimited” tax-free succession. Experts recommend three immediate steps:

1. Valuation: Get an up-to-date professional valuation of land, livestock, and machinery. With land prices rising, many “small” farms may still find themselves near the £2.5m mark.
2. Review Wills: Ensure your will is structured to maximize the new allowances, particularly regarding spousal transfers.
3. The “Seven-Year Rule”: Consider lifetime gifting. Gifts made more than seven years before death generally remain outside the scope of inheritance tax.