Agricultural business property relief reforms 2026: Government raises inheritance tax relief threshold to £2.5 million

The Government, on 23 December, 2025 has confirmed a significant policy reversal affecting the agricultural business property relief reforms 2026, reshaping the inheritance tax landscape for farmers, landowners, and family-owned rural businesses. Following sustained pressure from the agricultural sector and professional advisers, the threshold for 100 per cent inheritance tax relief on qualifying agricultural and business property will increase from £1 million to £2.5 million per individual from April 2026.

This government adjustment marks a clear departure from the earlier reform proposals and materially changes how estates containing farmland and trading business assets will be taxed on death. For married couples and civil partners, the change allows up to £5 million of qualifying agricultural and business property to pass free from inheritance tax, in addition to existing nil-rate bands. The revised approach significantly reduces the number of estates exposed to unexpected tax charges and restores a degree of certainty that had been missing since the reforms were first announced.

What has changed under the agricultural business property relief reforms 2026

The agricultural business property relief reforms 2026 continue to limit the scope of inheritance tax relief but with a far more pragmatic structure than originally proposed. Qualifying agricultural property relief and business property relief will now apply at 100 per cent up to a combined value of £2.5 million per individual. Asset values above this threshold will continue to attract relief, but only at 50 per cent, resulting in an effective inheritance tax charge of up to 20 per cent on the excess.

Crucially, the allowance remains transferable between spouses and civil partners. Where estate planning has been structured effectively, families can still pass substantial farming and business interests to the next generation without triggering an immediate inheritance tax liability. This change aligns the tax framework more closely with the economic realities of modern farming, where land values often bear little relationship to disposable income.

Why the Government reversed its position on APR and BPR

Although widely described as an HMRC reversal, the decision reflects a Treasury-led policy recalibration rather than a shift in tax administration. HMRC enforces the rules; it does not design them. The original £1 million cap provoked widespread concern because it failed to account for the asset-rich, cash-poor nature of many farming businesses.

Land values across large parts of the UK, particularly in the South and East of England, routinely exceed £1 million even for modest family farms. Under the original proposal, many estates would have faced inheritance tax liabilities without the liquidity to meet them. The prospect of forced land sales, fragmented holdings, and disrupted succession planning created significant political and economic risk.

Industry bodies, advisers, and rural business groups provided clear evidence that the policy would undermine long-term food security, discourage inter-generational continuity, and ultimately raise less tax due to increased restructuring and pre-emptive planning. From a practical standpoint, the reforms also threatened to increase HMRC’s administrative burden while reducing overall tax efficiency.

The revised £2.5 million threshold represents a compromise. It reins in relief for very high-value estates while protecting the majority of genuine trading farms and rural businesses. It also restores confidence at a time when succession planning across the sector had largely stalled.

Planning implications ahead of April 2026

Despite the more generous threshold, the agricultural business property relief reforms 2026 still introduce complexity and risk for estates that rely on APR and BPR. Farmers and landowners should not assume that relief will apply automatically. Eligibility remains tightly defined, and asset use, ownership structure, and succession timing will all affect the final tax outcome.

Estate plans should now be reviewed in light of the revised thresholds to confirm that qualifying conditions are met and that reliefs will apply as expected. In some cases, restructuring undertaken in response to the original proposals may now need reassessment to ensure it remains appropriate. Lifetime planning, partnership arrangements, and ownership alignment between trading and investment assets will be particularly important.

Liquidity planning also remains critical. Where estate values exceed relief thresholds, families need a clear strategy for funding potential tax liabilities without compromising the viability of the business.

How Rayner Essex can help farmers and landowners plan with confidence

Rayner Essex acts as a strategic adviser to farming families, landowners, and rural businesses navigating inheritance tax complexity. Our role goes beyond technical compliance. We work proactively to anticipate policy change, interpret its practical impact, and build long-term inheritance tax strategies that protect both family wealth and the continuity of the business.

As specialist inheritance tax advisers, we help clients assess how the agricultural business property relief reforms 2026 apply to their specific circumstances. This includes reviewing eligibility for APR and BPR, stress-testing estate values against revised thresholds, and ensuring ownership and trading structures remain robust under HMRC scrutiny. We focus on tax efficiency without compromising commercial reality or future flexibility.

Our approach combines estate planning, succession strategy, and compliance assurance. We help farming families plan confidently for the future, avoid unnecessary exposure to inheritance tax, and respond calmly to legislative change rather than reacting under pressure. By staying ahead of the curve, we ensure our clients remain compliant, resilient, and well positioned for the next generation.

If you would like tailored advice on how the agricultural business property relief reforms 2026 affect your farm or rural business, our tax specialists are ready to help you plan with clarity and confidence.