Government lifts agricultural and business tax relief to £2.5m

The government has announced it will increase the threshold for Agricultural Property Relief and Business Property Relief from £1m to £2.5m when changes to the inheritance tax regime take effect in April 2026.

The move means spouses or civil partners will be able to pass on up to £5m of qualifying agricultural or business assets between them before paying inheritance tax, in addition to existing nil-rate allowances.

The change follows reforms announced at Budget 2024 and comes after concerns raised by farmers and business owners about the impact of the original proposals. 

The government said it had listened to feedback and would amend the Finance Bill in January, with the higher threshold applying from 6 April 2026.

Raising the threshold is expected to significantly reduce the number of estates affected by the reforms. 

The government said the number of estates claiming agricultural property relief, including those also claiming business property relief, that will face higher inheritance tax bills in 2026-27 will fall from 375 to 185.

Overall, around 85% of estates claiming agricultural property relief in 2026-27 are forecast to pay no additional inheritance tax as a result of the reforms. 

The number of estates affected that claim only business property relief, excluding those holding only AIM shares, is expected to fall by about a third.

Under the amended proposals, qualifying agricultural and business assets up to £2.5m per estate will continue to receive 100% relief, with 50% relief applying above that level. The allowance will be transferable between spouses or civil partners, including where one partner died before the policy is introduced.

The government said the reforms would still ensure that large agricultural and business estates do not receive unlimited relief, while maintaining a lower effective tax rate for qualifying assets compared with most other forms of wealth.

The cost of the changes will be assessed by the Office for Budget Responsibility and included in its next forecast.

Emma Reynolds, Environment secretary, said: “We have listened closely to farmers across the country and we are making changes today to protect more ordinary family farms,” she said. “Increasing the individual threshold from £1m to £2.5m means couples with estates of up to £5m will now pay no inheritance tax on their estates.”