Inheritance Tax Reform 2026: Agricultural and Business Property Relief Explained

This one got everyone's attention. Farmers especially. The government's capping inheritance tax relief for farms and businesses. From April 6, 2026, you don't get unlimited relief anymore. There's a £2.5 million cap. Above that, you pay tax. The numbers are significant, but they're also not as bad as the original proposal. Here's what actually changed and what it means.

The Change

Right now, farms and businesses get unlimited relief — 100% off the inheritance tax bill, no cap. From April 6, that's capped at £2.5 million per person at 100% relief. Anything above that gets 50% relief, meaning you pay an effective 20% IHT rate instead of being completely exempt. Married couples can use both allowances, so £5 million combined at full relief.

The full picture for a married couple

Allowance	Per person	Combined (couple)
APR/BPR 100% relief	£2,500,000	£5,000,000
Nil-rate band	£325,000	£650,000
Total IHT-free	£2,825,000	£5,650,000

A married couple can therefore pass on a farm or business worth up to £5.65 million completely free of IHT, combining the new APR/BPR allowance with the standard nil-rate bands.

The U-Turn (Sort Of)

A year ago, the plan was £1 million. Farmers lost their minds — understandably. The relief would have hit thousands of estates. Then, in December, the government blinked. They raised it to £2.5 million. That's still a cap, but it's a much softer one. It means fewer estates get hit, and the ones that do have more breathing room. Is it fair? That's a different argument. But it's significantly less painful than the original proposal.

The OBR now estimates that up to 1,100 estates will pay more IHT in 2026–27 as a result of the changes, down from around 2,000 under the original proposal. Of these, approximately 185 are estates claiming agricultural property relief.

AIM shares and EIS companies currently get full 100% relief too. From April 6, they're dropping to 50% relief — no matter how many shares you hold. So AIM holdings face 20% IHT on death.

Payment Flexibility

The option to pay IHT in up to 10 annual instalments, interest-free will be extended to all assets qualifying for APR and BPR. This is designed to ease the cash-flow burden on families who inherit illiquid assets like farmland.

Gifting Before April 2026

Gifts of agricultural or business property made before 6 April 2026 are not subject to the new cap, regardless of value. However, if the donor dies after 6 April 2026 and within seven years of the gift, the £2.5 million allowance will apply retrospectively when recalculating any IHT on the failed potentially exempt transfer (PET).

This creates a window for planning, but the seven-year rule means the timing benefit is not guaranteed.

If your farm or business is worth more than £2.5 million (or £5 million as a couple), you need to think about this. Business owners with unquoted shares above that threshold should review their plans. AIM investors holding for IHT reasons — this changes the math. Anyone with significant assets in trusts should get professional advice.

Future Indexation

The £2.5 million allowance is set to be increased in line with CPI from April 2031 for lifetime gifting purposes. However, this requires a future statutory instrument rather than being automatic.

What Actually Matters

Most farm and business estates won't be hit. The £2.5 million cap (£5 million for a couple) plus the regular nil-rate band means you've got real protection. But if you're above that? This is serious planning territory. The good news: you can pay IHT in instalments over 10 years without interest, which makes big farms and businesses more passable. The bad news: you need professional advice to navigate it properly. Don't try to DIY this one if it applies to you.