Inheritance Tax and Changes to Agricultural and Business Property Relief

The Chancellor’s recent proposals to restrict relief from Inheritance Tax (IHT) when passing on farms and qualifying businesses have caused significant concern across the farming and rural business communities.

Agricultural Property Relief (APR) and Business Property Relief (BPR) were introduced to protect qualifying farms and businesses from Inheritance Tax on death. Their purpose is to ensure that successors are not forced to sell assets or incur borrowing to meet an IHT liability, which could otherwise undermine the productivity or long-term viability of the business.

What is changing?

From April 2026, the combined value of APR and BPR available at 100% (meaning no Inheritance Tax is payable) will be limited to £2.5 million per person.

Any qualifying value above £2.5 million will attract relief at 50%. This means that half of the excess value will remain free of IHT, the whole value will be included in the estate for the IHT calculation. Reliefs and allowances will be applied to the applicable parts.

The Autumn Budget in November 2025 also confirmed that the 100% APR/BPR allowance will be transferable between spouses and civil partners. This applies even where the first spouse died many years before April 2026, when the new rules come into effect.

Based on guidance published by HMRC, it appears that the allowance can be transferred regardless of whether the first spouse owned qualifying agricultural or business assets. If unused on first death, the £2.5 million allowance can pass to the surviving spouse, potentially providing a combined allowance of up to £5 million to offset against qualifying BPR & APR assets within their estate.

The proposals outlined above are based on current government announcements and HMRC guidance and may be subject to change as legislation is finalised.

What about gifting?

The proposals also affect gifts of qualifying agricultural or business property made from Budget Day on 30 October 2024.

If a gift is made and the individual dies on or after 6 April 2026, within seven years of making that gift, the new rules will apply, with 100% APR/BPR capped at £2.5 million.

If the individual survives for seven years, the gift will normally fall outside of their estate for Inheritance Tax purposes. However, where the individual continues to benefit from the gifted asset, (e.g. they still live in a gifted property) its value may still be included in their estate, regardless of how long they survive.

These changes are likely to lead more farmers and business owners to consider bringing forward succession plans. However, gifting decisions can be complex and irreversible, and professional advice should always be taken before any action is taken.

Can pensions form part of the planning?

Pensions can play an important role in succession and Inheritance Tax planning. From age 55 (rising to 57 from 2028), pensions can provide an independent source of income, which may offer greater flexibility when transferring business or agricultural assets to the next generation.

There are a range of options available when accessing pension benefits, and advice should be taken to ensure any decisions align with wider financial and estate planning objectives.

What about insurance?

Existing life insurance policies should be reviewed to ensure they are written in trust. Policies not held in trust will normally form part of the estate and may be subject to Inheritance Tax. Most insurers can provide the necessary documentation to place policies into trust.

Whole of life insurance can be used to provide a lump sum on death to help meet a potential Inheritance Tax liability. Alternatively, where assets are gifted, term insurance may be appropriate to cover the potential tax liability during the seven-year period following a gift.

An A J Hird Financial Adviser can explain how these options work and make recommendations based on individual circumstances. The suitability of any insurance arrangement will depend on individual circumstances and should be assessed as part of a wider financial review.

How can A J Hird help

If you would like to understand how these proposed changes may affect you and your family, please contact A J Hird on 01756 700718.

When you contact us, we would be happy to arrange a no obligation discovery meeting to understand your circumstances and how A J Hird might be able to help you and your family. At the same time we will explain the advice services we offer

A J Hird is part of the Prosperis Group that was established in 2002 and provides independent financial advice to a wide range of individuals, landowners and business owners throughout the UK.

This document is intended to provide general information only and does not constitute personal financial

or tax advice. Pension rules and tax treatment depend on individual circumstances and may change in the future.

Please remember that the value of investments can rise or fall, and you may get back less than you invest. Life Assurance products are subject to underwriting.

Inheritance Tax planning is not regulated by the Financial Conduct Authority. All Information is based on our understanding of the appropriate rules and legislation as at January 2026.