News
Government Increases Inheritance Tax Relief Threshold to £2.5m for Farms and Businesses
23 Dec 2025
The government has today (23 December 2025) announced a significant change to Agricultural and Business Property Reliefs, increasing the threshold from £1 million to £2.5 million when the reforms are introduced in April 2026.
This major update means that spouses or civil partners will be able to pass on up to £5 million in qualifying agricultural or business assets between them before paying inheritance tax, on top of existing allowances.
Listening to the Farming Community
Following the reforms to Agricultural and Business Property Reliefs announced at Budget 2024, the government has carefully considered feedback from the farming community and businesses about the proposed changes.
Environment Secretary Emma Reynolds said:
“Farmers are at the heart of our food security and environmental stewardship, and I am determined to work with them to secure a profitable future for British farming. We have listened closely to farmers across the country and we are making changes today to protect more ordinary family farms.”
What This Means in Practice
The increased threshold will significantly reduce the number of farms and business owners facing higher inheritance tax bills under the reforms. The key impacts include:
- The number of estates claiming Agricultural Property Relief (including those also claiming Business Property Relief) affected by the reforms in 2026-27 will be halved from 375 to 185
- Around 85% of estates claiming agricultural property relief in 2026-27, including those that also claim business property relief, are forecast to pay no more inheritance tax on their estates
- Most estates will benefit, with inheritance tax cut by hundreds of thousands of pounds for many families
- The number of estates affected by the reforms claiming only Business Property Relief (excluding those holding only AIM shares) will fall by a third
The Technical Details
The government will introduce an amendment to the Finance Bill 2025 in January to increase the threshold at which 100% Agricultural Property Relief and Business Property Relief applies from £1 million to £2.5 million per estate, with 50% relief continuing to apply to qualifying assets above that level.
Importantly, the allowance will be transferable between spouses. This means a surviving spouse or civil partner will be able to pass on up to £5 million of qualifying agricultural and business assets tax-free, on top of existing nil-rate bands. This provision will apply to people who are widowed and have lost spouses or civil partners before the policy was introduced.
The changes will apply from 6 April 2026.
Balancing Fairness and Support
The government remains committed to making the tax system fairer by reducing the generous inheritance tax reliefs available to owners of the largest agricultural and business estates, while continuing to recognise the importance of farms and businesses to local communities and the wider economy.
“It’s only right that larger estates contribute more, while we back the farms and trading businesses that are the backbone of Britain’s rural communities,” said Environment Secretary Emma Reynolds.
The revised approach ensures that qualifying agricultural and business assets continue to be taxed at a much lower effective rate than most other assets, while preserving the majority of the revenue from reform to help cut debt and borrowing and fund public services.
Supporting British Farming
This announcement follows the government’s commitment to establish a new Farming and Food Partnership Board, which will bring together senior leaders from farming, food production, retail, finance and government to take a practical, partnership-led approach from farm to fork to strengthen our food production.
The government has also recently updated planning rules via the National Planning Policy Framework to cut unnecessary red tape and help farmers expand their businesses with easier approvals on farm reservoirs, greenhouses, polytunnels and farm shops, boosting food production and rural growth.
What Happens Next
The amendment to the Finance Bill 2025 will be introduced in January, with the new threshold coming into effect from 6 April 2026. The costings for this announcement will be incorporated into the next Office for Budget Responsibility forecast.
For more information about how these changes may affect your estate, we recommend consulting with a qualified tax advisor or agricultural property specialist.
Source: Inheritance tax reliefs threshold to rise to £2.5m for farmers and businesses – GOV.UK
