There has been a lot of noise regarding the changes to inheritance tax relief for agricultural and business property, but what are the proposed changes and who will be affected?
It’s worth noting that although draft legislation was published in July 2025, these changes are still proposals and not law, and that final legislation may differ from the published draft.
Please also note that whilst trusts, their settlors, their trustees and their beneficiaries are affected by inheritance tax and by these proposed changes, this is outside the scope of this blog.
What are the current rules?
Under current legislation, agricultural property relief (APR) is available on the agricultural value of agricultural property. This applies to assets held in an individual’s estate at the date of death and to assets gifted in the previous seven years which are deemed to form part of the estate on death.
Relief is given at either 100% or 50% depending on the asset and other conditions, and the relief reduces the value of the asset that is charged to inheritance tax (IHT).
Similarly, business property relief (BPR) is available on the value of qualifying business property, again either at 100% or 50% depending on the asset and other conditions.
BPR also applies at 100% to the value of shares that are quoted on the Alternative Investment Market (AIM) and this type of investment is often used in inheritance tax planning.
What are the key changes?
- From 6 April 2026 each individual will be limited to £1 million combined APR and BPR at 100%, with excess qualifying property restricted to 50% relief.
- Property which would only qualify at 50% does not use up the £1 million allowance.
- The £1 million allowance does not apply to AIM shares. All of their value is limited to relief at 50%.
- The £1 million allowance will apply to assets held in the estate on death, and to assets gifted in the previous seven years which are made on or after 30 October 2024.
- The £1 million allowance is on top of the existing nil-rate band (NRB) of £325,000 and the existing main-residence nil-rate band (RNRB) of £175,000.
- The £1 million allowance is per person, but is not transferrable between spouses in the same way as the NRB and RNRB. If the first spouse to die leaves everything to their spouse without having made lifetime gifts, then their allowance will be wasted and the second spouse to die will still only benefit from £1 million at 100%.
- The option to pay IHT by equal annual instalments over 10 years, interest-free, will be extended to all property which is eligible for APR or BPR, regardless of the applicable rate of relief.
Who will be impacted?
It is expected that if the proposed changes are enacted then around 2,000 estates in the UK will pay more IHT in 2026/27 than they otherwise would.
These 2,000 estates represent:
- 0.3% of all UK estates in 2026/27
- 4.5% of the UK estates in 2026/27 that are subject to IHT
Of these 2,000 estates:
- Around 500 are estates claiming APR
- Around 1,500 are estates claiming BPR
- Of the 1,500 estates claiming BPR, 1,000 are estates only claiming BPR on AIM shares
The above is the impact before the effect of any tax planning measures are considered.
Show me some numbers
Here’s an example to show the actual tax impact.
Suppose Mary owns agricultural or business property worth £5 million that would qualify for 100% BPR. She has no other assets, she’s made no lifetime gifts and does not qualify for the RNRB.
Under the proposed new rules, the first £325,000 will be covered by the NRB, the next £1 million will benefit from 100% relief and the remaining £3,675,000 will benefit from 50% relief. The value of the estate remaining, which will be subject to IHT at 40% is £1,837,500.
IHT payable is £735,000, an overall tax rate of less than 15%, and this can be paid in ten interest-free annual instalments of £73,500 with the first instalment being payable six months after the end of the month that Mary dies and the final instalment nine years after that.
What should I do?
The first step with Inheritance Tax is always to review your assets to work out whether you may be facing an IHT liability and how much it might be.
If there is a likely IHT liability then you can consider options to mitigate this by maximising reliefs and making sure your will is tax-efficient. You could also speak to a financial adviser to see whether you could take out life insurance to finance the liability.
It is important to consider that existing wills may no longer be effective if the £1 million allowance remains non-transferable between spouses when final legislation is published. Existing ‘mirror wills’ which leave everything to the surviving spouse on the first death and then pass everything down to the next generations on the second death would waste the allowance available on the first death.
You can also consider whether a Deed of Variation, which can change the will to re-direct assets after a death, could reduce inheritance tax liabilities.
If you are wondering how these changes will impact you, get in touch with Kathryn from Greenwood Tax and Accounting today.
