The farming and agricultural community can kick off 2026 with greater reassurance and certainty, now that the government has made two material concessions to its planned restrictions on agricultural and business property relief.
Unlimited 100% relief on qualifying business and agricultural assets will end on the owner’s death on or after 6 April 2026, but the changes will now have far less impact than when the reforms were first touted. Only the largest estates will now be affected.
Still, farming and agricultural families should still consider the extent to which the revised reforms will impact them and take specialist advice as soon as possible.
£2.5m cap
Just two days before Christmas, the government announced it will raise the cap for 100% relief on BPR/APR to £2.5m (up from £1m as originally proposed). It has taken many months of sustained pressure from the farming and agricultural sector to secure this concession, and it came little more than three months before the limited relief comes into effect.
The key changes are:
- £2.5 million Allowance: The previously unlimited 100% relief will be capped at a combined £2.5 million of qualifying APR and BPR assets per individual.
- 50% Relief Threshold: Any value above the £2.5 million threshold will qualify for only 50% relief, resulting in an effective IHT charge of 20% on that excess value (before considering other allowances like the nil-rate band).
Note that qualifying assets for deaths since 6 April 2025 includes land taken out of agricultural production permanently, or for an extended period, under environmental land management agreements.
The government has estimated that raising the cap to £2.5m will halve the number of affected estates claiming APR/BPR.
Spousal transfer
Earlier, the chancellor announced a key change in her Autumn Budget favouring spouses and civil partners. Any of the 100% relief allowance for qualifying agricultural or business property assets left unused on the death of the first owner from 6 April 2026 will now be transferable to the surviving spouse/civil partner on their death.
It means they will be able to leave up to £5m in qualifying assets before IHT may be payable. Note that the availability of spousal transfer will not extend to cohabiting couples.
This was an unexpected but very welcome concession that will significantly dilute the impact of the reforms to the relief. Many more families can now be more confident that their agricultural assets will be better protected as they are passed down to the next generation.
What does this mean?
The combined effect of these concessions will significantly relieve the financial pressures on farmers and agricultural owners, many of whom have been alarmed for months about their succession plans and how they can afford to finance an unexpected IHT bill. Both of these climb downs undoubtedly follow intense pressure on the government to rethink its intentions and consider the serious impact on farming families.
How we can help
Many agricultural business owners have already taken steps to restructure their businesses in light of the upcoming reforms. Now that the changes have been watered down, it is important to reconsider how the latest announcements may impact your succession plans.
Contact our expert personal tax team for early advice by calling Sally Smith on 01584 873156 or emailing sally.smith@mfgsolicitors.com.