Inheritance Tax and the Rural Property Sector

How is agricultural and business property relief changing?

Farming and other land-based enterprises are typically multi-generational, requiring business owners to make long-term decisions that extend well beyond their own lifetime. These businesses are usually capital intensive due to the high value of fixed assets, yet they often operate with relatively low income and modest profitability.

Agricultural Property Relief (APR) and Business Property Relief (BPR) play a crucial role in ensuring that working farms and other land-based enterprises are not forced to sell off assets to cover inheritance tax liabilities after a death. Without these reliefs, the resulting financial burden could disrupt operations, reduce economic viability, or even lead to business closure. These measures were introduced in recognition of the fact that such tax charges were viewed as having damaging effect on risk taking and enterprise within a particularly important sector of the economy’.

Claiming Inheritance Tax relief to pass on the family farm is not about tax avoidance; it's about supporting the long-term management of the land and preserving the continuity of the family business.

In the Autumn Budget 2024, Rachel Reeves as Chancellor of the Exchequer announced the governments planned changes to restrict inheritance tax reliefs, effective from 6 April 2026. Several rallies and marches have been held by farmers and landowners in London and across the country since the announcement, protesting over the Treasury’s IHT reforms.

What is Agricultural Property Relief?

Agricultural Property Relief (APR) is an inheritance tax relief, which helps farmers and landowners pass on agricultural property without a large tax bill either during their lifetime or when they die.

What is Business Property Relief?

Business Property Relief (BPR) is an inheritance tax relief which applies to qualifying business assets. It was introduced in 1976 to allow businesses to be passed down either IHT free or at a reduced rate without the family of the deceased having to sell the business.

What are the current rules?

APR is available to farmers who have either occupied and actively farmed the land for a minimum of 2 years or owned the land for at least 7 years while it has been farmed and managed by another person.

100% relief is available if the land is actively farmed by the owner or let under a qualifying tenancy, such as those governed by the Agricultural Holdings Act 1986.

50% relief is available if the land is owned but not directly farmed by the owner, such as a letting on a Farm Business Tenancy.

BPR is available to business owners who hold qualifying business assets for at least 2 years and continue to hold them on their death.

100% relief is available for a sole trader or partner interest in a trading business; a holding of shares in an unquoted company, including shares listed on the Alternative Investment Market and; Enterprise Investment Schemes.

50% relief is available for a controlling holding of shares in a quoted company and land, buildings, machinery or plant used wholly or mainly for the purposes of the business.

What are the changes are coming?

On 21 July 2025, the Government released the draft Finance Bill 2025/26 legislation detailing the proposed inheritance changes.

In Summary:

• From 6 April 2026, individuals will have a £1 million 100% relief allowance which will apply to the combined value of assets that qualify for 100% Agricultural Property Relief (APR) and/or 100% Business Property Relief (BPR)
• The £1m allowance will apply during lifetime and on death, meaning that qualifying assets that have been gifted on or after 30 October 2024 where the donor dies on or after 6 April 2026 will reduce the allowance available on death.
• For lifetime gifting, the 100% relief allowance will refresh every 7 years and will be increased in line with the Consumer Price Index from April 2030. N.B: this will not be automatic and a future government would need to implement a statutory instrument.
• For relevant property trusts there will also be a £1 million 100% trust relief allowance. This allowance will refresh every 10 years.
• Eligible assets exceeding the £1 million allowance will qualify for 50% relief instead of 100%, resulting in an effective 20% inheritance tax charge on the remaining value (IHT is charged at 40%). This will apply to both individuals and trusts.
• Shares in companies not listed on recognised stock exchanges (AIM companies and EIS companies quoted on AIM) will only be entitled to 50% relief under the new rules
• Trust exit charges will be standardised meaning all relevant property trust exit charges will be calculated on unrelieved values (before APR/BPR) regardless of whether the exit takes place before or after the first 10th anniversary.
• On death an individual’s unused allowance cannot be transferred to a spouse or civil partner, so estate planning and reviews may be necessary to ensure full benefit of the changes.
• The option to pay IHT by up to 10 equal, annual instalments, interest free will be extended to all property eligible for APR/BPR.
• Consultation on the draft legislation is open until 15 September 2025

The Impact

In August 2025, the CLA published some startling statistics, stating that 80% of farmers worry for business survival as the government presses ahead with the family farm tax. They also reported more than 60% have considered selling their farm and leaving the industry in a recent polling of 500 farmers and landowners

The Treasury published an impact assessment of the changes proposed, along with the draft legislation of the policy. It claimed that capping IHT reliefs will not have ‘any significant macroeconomic impacts’ and ‘it is not expected to have a material impact on food security’ and ‘would not be expected to impact the UK’s ability to source imports from international markets’.

A study looking into the economic and fiscal impacts of changes to the taxes was commissioned by Family Business UK and conducted by independent consultancy CBI Economics. More than 4,000 businesses and farms across the UK participated in the research and the headline results illustrate the extent of the impact that IHT changes will have on the UK:

• The proposed inheritance tax changes have the potential to lose the Treasury £1.9bn of income and cost the overall economy £14.9bn in lost business revenue
• More than 200,000 jobs could be lost during this parliament due to reductions in recruitment
• 23% of businesses have already cut jobs and paused recruitment ahead of the changes
• 49% of family farms and 55% of family business have already cancelled proposed investment projects since the changes were announced.