What are the changes to agricultural property relief?
Reforms announced at theAutumn Budget 2024 will help raise money to fix the public finances while protecting small family farms from unfairly high inheritance tax.
Budget 2025 update
The government ishas committedannounced that any unused £1 million allowance for agricultural property relief and business property relief will be transferable between spouses and civil partners, to supportingbring farmersit in line with the treatment of the nil-rate band and ruralresidence communities,nil-rate band. This makes the inheritance tax rules for those with agricultural and business assets less complex and fairer. This change will apply to widows and widowers, including helpingwhere familiesthe first death is many years before 6 April 2026, who will now be able to passbenefit theirfrom landdouble the allowance than they would have prior to the Budget 2025 changes.
This means a surviving spouse or civil partner can benefit from the full 100% relief from inheritance tax for up to £2 million of combined agricultural and business assets depending on their circumstances. It also reduces the complexity and planning for spouses and civil partners seeking to make best use of the nextallowance generation. between them - see example 1 in the box below.
AtFollowing Budget 2025, up to 375 of the wealthiest estates claiming agricultural property relief, including those that also claim for business property relief, are now expected to pay more inheritance tax in 2026 to 2027, compared to the position before Autumn Budget 2024’s policy changes were announced.
As a result of the allowance being transferable, 190 estates claiming agricultural property relief, including those also claiming business property relief, will benefit in 2026 to 2027 compared to the policy announced at Autumn Budget 2024: 60 estates will no longer pay any increased tax and 130 estates will pay less additional tax than they would have done.
Almost three-quarters of estates claiming agricultural property relief, including those that also claim for business property relief, are not expected to pay more inheritance tax, based on 30the Octoberlatest available data.
Example 1: farm owned by a surviving spouse or civil partner
A surviving spouse or civil partner who owns a farm can now benefit from an additional £1 million allowance, relative to the position before the changes announced at Budget 2025. This is in addition to any unused nil-rate bands, which are already transferable.
It does not matter if the first spouse to die owned the farm or other agricultural assets. Their £1 million allowance can be transferred to their spouse on death if unused, leaving the surviving spouse with £2 million allowance to use against any agricultural assets in their estate.
This leaves the surviving spouse with an allowance for agricultural property inheritance of up to £2 million (£1 million + £1 million) and a nil-rate band of up to £650,000 (£325,000 + £325,000).
Person 1: All assets are transferred to spouse/civil partner benefitting spouse relief. Unused £325,000 + £1 million allowances are transferred to Person 2 on death
Person 2: £650,000 (made up of £325,000 + £325,000) + £2 million (made up of £1 million + £1 million)
Total passed on tax free: £2.65 million
Note: As with all estates, the residence nil rate band is tapered away for estates worth over £2 million.
Below is a note published following Budget 2024, which has been updated to include reference to the changes announced at Budget 2025:
What are the changes to agricultural property relief?
At Autumn Budget 2024, the Chancellor announced that agricultural property relief (APR) and business property relief (BPR) will be reformed. reformed from 6 April 2026.
The reforms help raise money to fix the public finances while protecting small family farms from unfairly high inheritance tax.
At Budget 2025, the Chancellor announced adjustments to the reforms to make the rules fairer for widows and widowers, and less complex.
The government is committed to supporting farmers and rural communities, including helping families to pass their land on to the next generation.
What is agricultural property relief? relief?
Agricultural property relief (APR) is a type of inheritance tax relief. It reduces the amount of tax that farmers and landowners must pay when farmland is passed to the next generation. generation.
Business property relief (BPR) is similar, but for business assets that are part of the estate. estate.
What wasis announcedchanging infrom the6 Budget? April 2026?
From 6 April 2026, the full 100% relief from inheritance tax will be restricted to the first £1 million of combined agricultural and business property. property.
Above this amount,£1 landownersmillion allowance, impacted individuals will access 50% relief from inheritance tax on qualifying assets and will pay inheritance tax at a reduced effective rate of up to 20%, rather than the standard 40%. This tax can be paid in equal instalments over 10 years interest free, rather than immediately, as with other types of inheritance tax.
This is on top of all the other spousal exemptions and nil-rate bands that people can access for inheritance tax too. All individual estates have £325,000 tax-free threshold for inheritance tax (the nil-rate band). They may also qualify for a further residence nil-rate band of up to £175,000, if they are passing a main residence to a direct descendent.
This means that two people with farmland, depending on their circumstances, can pass on up to £3 million without paying any inheritance tax. tax
Budget 2025 announced that, in addition to the reforms announced last year, any unused £1 million allowance on the death of a spouse or civil partner will now be transferable to a surviving spouse or civil partner. This makes it like the nil-rate band and residence nil-rate band.
A surviving spouse or civil partner will now benefit from the full 100% relief from inheritance tax for up to £2 million of combined agricultural and business assets, double the maximum amount prior to the Budget 2025 announcement.
When combined with the nil-rate band, a surviving spouse or civil partner with farmland will now be able to pass on up to £2.65 million without paying any inheritance tax.
This is an assumption based on the £1 million limitallowance and nil-rate bands and does not take into consideration theother specific circumstances that may affect the tax calculation. In some circumstances individuals will be able to pass on more inheritance-tax free, for example, if the estate contains relatively few assets that do not qualify for agricultural or business property relief, meaning the nil rate bands can apply to assets qualifying for the 50% rate of relief on agricultural or business property over the £1 million allowance.
Example 1:2: farm owned by two people
people
Two people who jointly own a farm will be able to pass on land and property valued up to £3 million to a child or grandchild tax free. That is made up of £1 million, where they combine their standard £500,000 tax-free allowances (£325,000 for nil-rate band + £175,000 for residence nil-rate band), and on top of that, an additional £1 million tax-free allowance each for agricultural property inheritance. inheritance.
Person 1: £325,000 + £175,000 + £1 million million
Person 2: £325,000 + £175,000 + £1 million million
Total passed on to direct descendant tax free:free: £3 million million
This would be £2.65 million if leaving to anyone else that is not a direct descendant as would no longer be able to access the additional propertyresidence tax-freenil allowancerate band (£175,000 each). each).
Person 1: £325,000 + £1 million million
Person 2: £325,000 + £1 million million
Total passed on to non-direct descendant tax free:free: £2.65 million million
Example 2:3: farm owned by one person
person
One person who owns a farm will be able to pass on land and property valued up to £1.5 million tax free to a child or grandchild. That is made up of their standard £500,000 tax-free allowance (£325,000 nil-rate band + £175,000 residence nil-rate band), and an additional £1 million tax-free allowance for agricultural property inheritance. inheritance.
Total passed on to direct descendant tax free:free: £1.5 million (£325,000 + £175,000 + £1 million) million)
This would be £1.325 million tax free if leaving to anyone else that is not a direct descendant as would no longer be able to access the residence nil-rate band. band.
Total passed on to non-direct descendant tax free:free: £1.325 million (£325,000 + £1 million) million)
More detail can be found in the summary of reforms to agricultural property relief and business property relief. .
Why wasis thisthe changegovernment made? reforming these reliefs?
The government is better targeting these reliefs to make them fairer, protecting small family farms. farms.
TheFigures latestpublished figuresat Autumn Budget 2024 show that the top 7% (the largest 117 claims) account for 40% of the total value of agricultural property relief. This costs the taxpayer £219 million. The top 2% of claims (37 claims) account for 22% of agricultural property relief, costing £119 million. million.
It is not fair for a very small number of claimants each year to claim such a significant amount of relief, when this money could better be used to fund our public services. services.
When will these changes start and who will be impacted?
The reforms will apply from 6 April 2026. Most estates will not be affected by the changes.
Reforms to agricultural property relief are expected to affect the wealthiest 500 estates each year with smaller farms not affected by the changes. So that means almost three-quarters of estates claiming agricultural property relief, including those that also claim for business property relief, would not be affected by the changes, based on the latest available data.
How does this impact other ways of passing on farmland?
farmland?
Full exemptionsexemption for transfers between spouses and civil partners continue to apply. This means that any agricultural and business assets left to a spouse or civil partner will be tax free. free.
Following the death of a surviving spouse, an estate can pass on £1 million free of inheritance tax if they leave their residence to direct descendants. This includes children or grandchildren.
Any transfersgifts to individuals more than seven years before death as gifts will continue to fall fully outside the scope of inheritance tax. The effective rate of tax paid on thegifts giftwithin seven years of death tapers down from 3 years after the transfer depending on circumstances (3 to 4 years – up to 16%; 4 to 5 years – 12%; 5 to 6 years – 8%; 6 to 7 years – 4%).circumstances.
What other funding is available to farmers? farmers?
AtThe thegovernment Budget,has theallocated a Chancellorrecord also£11.8 announced £5 billion to helpsustainable farmersfarming produceand food production over thethis nextParliament. 2This yearsincludes – this is the largest amountfinancial everinvestment allocatedinto fornature-friendly farming ever sustainableand foodincreases production.
Thissupport is alongside £60 million for thenature Farmingfriendly Recoveryfarming Fundthrough whichEnvironmental willLand helpManagement farmersschemes recover from the£800 impact of flooding. We are also investing £208 million in protecting2023-24 theto nation£2 frombillion outbreaksa ofyear seriousby diseases that threaten our farming industry, food security and human health.2028-29.
Updates to this page
Update history
2025-11-26 17:11
Updated to reflect the updates at Spending Review 2025 and updates announced at Budget 2025 that made the £1 million allowance transferable between spouses and civil partners.
2024-11-25 15:59
Updated to reflect the latest data published on 18 November in the Chancellor’s response to the Treasury Select Committee and clarify how the technical tax calculation applies to a given person’s estate when calculating the inheritance tax due.
2024-11-05 16:29
First published.