Inheritance tax reliefs threshold to rise to £2.5m for farmers and businesses

In a significant development. the government has relented to a degree on its proposed restrictions to Inheritance Tax Agricultural Property Relief (APR) and Business Property Relief (BPR) due to take effect from 6 April 2026. 

The proposed cap of £1m on the amount of 100% APR/BPR will now be set at £2.5 million, more than double the original amount. This comes on top of the Autumn Budget 2025 announcement that the proposed cap would be transferrable between spouses; a relaxation on the previous proposals.

Although the news of the higher cap has focused mainly on the impacts of the IHT restrictions on farmers, this will also be relevant to business owners looking to pass on their business to family, rather than sell up and retire. 

Whilst welcome, the development comes late in the day when many business owners and farmers will already have made changes to their businesses in light of the Autumn Budget 2024 announcement of the imposition of a cap from April 2026.

Together with the Autumn 2025 relaxation that the cap will be transferable between spouses, this raising of the cap to £2.5m means spouses will be able to pass on qualifying business or agricultural assets of up to £5m between them.

Finance Bill

To deliver the raised cap, the government will amend the Finance Bill 2025 to:  

• Increase the threshold at which 100% APR and BPR applies from £1m to £2.5m per estate, with 50% relief continuing to apply to qualifying assets above that level.  
• As the allowance will be transferable between spouses, a surviving spouse or civil partner will be able to pass on up to £5m of qualifying agricultural and business assets tax-free, on top of existing nil‑rate bands.  This will apply to people who are widowed and have lost spouses or civil partners before the policy was introduced.    

Analysis

Following intense lobbying from farmers, the government has listened to genuine concerns about the impact of the proposed cap on IHT reliefs.

Before the Autumn Budget 2024 cap proposal was announced, there was no cap so that farms and trades could be passed on to offspring free of IHT without assets having to be sold or employees losing their jobs.

After the announcement, the government issued a consultation on how its proposals would work. Although many replies offered alternative suggestions that would have better countered perceived abuses of the system, they were ignored and the Finance Bill clauses were left unchanged.

See our earlier article: Major inheritance tax changes to go ahead despite lobbying

Many farms and business owners have already made significant changes to their succession plans as a result of the proposed changes (e.g. selling land, accelerating successions), and these piecemeal adjustments both in the Autumn Budget 2025 and then again just three weeks later create significant uncertainty for farmers and business owners.

It is to be hoped that there will now be a degree of stability without further incremental changes being announced.

Contact us

The proposed inheritance tax changes from April 2026 are very significant and are forcing individuals and families to reassess their succession plans.

Taking steps to reduce the impact of these changes may have consequent implications for your tax liability, your family and commercial matters, so it is important to work with your advisors on the best options available.

If you would like to discuss how these forthcoming changes could impact you and your business, please contact your usual Bishop Fleming advisor, or a member of our Tax Team.