What are the changes to agricultural property relief?

What

Budget are2025 theupdate

The changesgovernment tohas agriculturalannounced propertythat relief?

Agriculturalany unused £1 million allowance for agricultural property relief and business property relief will be reformedtransferable frombetween 6spouses Apriland 2026.

Thecivil allowancepartners, forto thebring 100%it ratein line with the treatment of reliefthe willnil-rate beband setand atresidence £2.5nil-rate million,band. This makes the inheritance tax rules for those with aagricultural 50%and ratebusiness ofassets reliefless thereafter.complex and fairer. This meanschange awill coupleapply to widows and widowers, including where the first death is many years before 6 April 2026, who will now be able to passbenefit onfrom double 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 £5£2 million of combined agricultural orand business assets betweendepending them, on toptheir circumstances. It also reduces the complexity and planning for spouses and civil partners seeking to make best use of the existingallowance allowancesbetween suchthem as- see example 1 in the nil-ratebox band.below.

TheFollowing reformsBudget 2025, up to 375 of the wealthiest estates claiming agricultural property reliefrelief, andincluding those that also claim for business property reliefrelief, meanare thatnow onlyexpected ato smallpay numbermore ofinheritance estatestax within agricultural2026 andto business2027, assetscompared willto paythe additionalposition inheritancebefore tax.Autumn TheBudget government2024’s estimatespolicy thatchanges upwere toannounced.

As 185a result of the allowance being transferable, 190 estates claiming agricultural property relief, including those also claiming business property relief, arewill expectedbenefit in 2026 to 2027 compared to the policy announced at Autumn Budget 2024: 60 estates will no longer pay moreany inheritanceincreased tax inand 2026-27.130 Thisestates meanswill 85%pay ofless alladditional tax than they would have done.

Almost three-quarters of estates claiming agricultural property reliefrelief, in 2026-27, including those that also claim for business property relief, are forecastnot expected to pay more inheritance tax, based on the latest available data.

TheBelow government is committeda note published following Budget 2024, which has been updated to reforminginclude 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 and business property relief,relief will be reformed from 6 April 2026.

The reforms help raise money to fix the public finances while supportingprotecting small family farms andfrom businesses.unfairly Thishigh reforminheritance willtax.

At supportBudget 2025, the governmentChancellor withannounced itsadjustments objectivesto the reforms to fixmake the publicrules finances,fairer for widows and fundwidowers, publicand services. 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?

Agricultural property relief 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.

Business property relief is similar, but for business assets that are part of the estate.

What is changing from 6 April 2026?

From 6 April 2026, the full 100% relief from inheritance tax will be restricted to the first £2.5£1 million of combined agricultural and business property. 

Above this £2.5£1 million 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.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.

AnyThis means that two people with farmland, depending on their circumstances, can pass on up to £3 million without paying any inheritance tax

Budget 2025 announced that, in addition to the reforms announced last year, any unused £2.5£1 million allowance on the death of a spouse or civil partner iswill now be transferable to a surviving spouse or civil partner. This makes it like the nil-rate band and residence nil-rate band.

ThisA meanssurviving aspouse coupleor civil partner will benow ablebenefit tofrom passthe onfull 100% relief from inheritance tax for up to £5£2 million of combined agricultural orand business assetsassets, betweendouble them,the onmaximum topamount ofprior to the existingBudget allowances2025 suchannouncement.

When ascombined with the nil-rate band.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.

TheThis belowis examples are an assumption based on the £2.5£1 million allowance and nil-rate bandbands and dodoes not take into consideration other specific circumstances that may affect the tax calculation. In some circumstances individuals will be able to pass on more inheritanceinheritance-tax taxfree, free.for For example, if the estate contains relatively few assets that do not qualify for agricultural or business property relief, meaning the nil-ratenil bandrate bands can apply to assets qualifying for the 50% rate of relief on agricultural or business property over the £2.5£1 million allowance.