If you’re a farmer or business owner, Inheritance Tax (IHT) reliefs like Agricultural Property Relief (APR) and Business Property Relief (BPR) have long been essential tools for passing on assets tax-efficiently.
At present, there’s no limit on how much agricultural or business property can qualify for 100% relief. But that’s set to change — and the impact could be significant.
What’s Changing from April 2026?
From 6 April 2026, 100% APR and BPR will be capped at the first £1 million of qualifying agricultural and business property.
- Anything above this threshold will only receive 50% relief.
- The new rules apply to farmhouses, farm buildings, and other agricultural property within an estate.
This could leave families with larger farms or businesses facing a bigger IHT bill than expected.
How the £1 Million Allowance Works
- Each individual’s estate will get a £1 million allowance.
- If it’s not used in full, it’s lost — unlike the nil rate band or residence nil rate band, it cannot be transferred to a surviving spouse or civil partner.
This means careful planning is now essential.
Why Leaving Everything to Your Spouse May Not Be Efficient
Traditionally, many farmers and business owners leave everything to their spouse or civil partner, making use of the inter-spouse exemption. But under the new rules, this could backfire:
- On the first death, the exemption applies.
- On the second death, there’s only one £1 million allowance available — meaning assets above £1 million only benefit from 50% relief.
A smarter approach may be to leave up to £1 million of qualifying assets directly to children or grandchildren on the first death. This way, a couple can secure 100% APR and BPR on up to £2 million combined.
Lifetime Transfers
Another option is to consider lifetime transfers:
- These are Potentially Exempt Transfers (PETs), which only become chargeable if the donor dies within seven years.
- If death occurs within three to seven years, taper relief can reduce the tax bill.
Be aware of transitional rules:
- If a lifetime transfer is made on or after 30 October 2024, and the donor dies on or after 6 April 2026 but within seven years, the £1 million cap will still apply.
- Because allowances are used in chronological order, earlier PETs could reduce the available allowance on death.
What Should Farmers Do Now?
These changes could have a major impact on succession planning, particularly for families with larger farms or businesses. Without proper planning, more of the estate could be exposed to Inheritance Tax than before.
Final Thoughts
Passing on the farmhouse and other agricultural property has always required careful planning — and from 2026, it will be even more important to get it right.
Need Advice on APR and BPR?
At Jon Davies Accountants, we work with farmers and business owners to plan ahead, protect their estates, and minimise Inheritance Tax.
Contact Jon and the team today to review your will, succession plan, or lifetime gifting strategy before the rules change.
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Any questions?
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