In an announcement just before Christmas, the government changed its position yet again in relation to Inheritance Tax (IHT) changes for farmers. It is worth noting that although the announcement was couched in terms of farmers, it appears that the changes will affect both farming and business property.
The full release can be read in this government press release, but the main points are dealt with below.
The government stated that it had listened to the concerns of the farming community and businesses about the reforms and was increasing the limits, whilst maintaining the core principle that the most valuable agricultural and business assets should not receive unlimited relief.
The level of the Agricultural and Business Property Reliefs threshold will be increased from £1 million to £2.5 million when it is introduced in April 2026. This may allow spouses or civil partners to pass on up to £5 million in qualifying agricultural or business assets between them before paying IHT.
The government stated that raising the threshold will significantly reduce the number of farms and business owners facing higher IHT bills under the changes, ensuring that only the largest estates are affected, meaning that:
- the number of estates claiming Agricultural Property Relief (APR) (including those also claiming Business Property Relief (BPR)) affected by the reforms in 2026/27 halves from 375 to 185;
- the number of estates affected by the reforms claiming only BPR (excluding those holding only AIM shares) will fall by a third; and
- around 85% of estates claiming APR in 2026/27, including those that also claim for BPR, are forecast to pay no more IHT on their estates.