We are sharing this update from ACCA, our professional body, for the interest of clients and contacts. The content is (c) ACCA
The detail behind the threshold increasing to £2.5m
On 23 December 2025, the government announced that the threshold for Agricultural and Business Property Reliefs will increase from £1m to £2.5m, effective from April 2026.
The cap on 100% inheritance tax relief to £1m available for agricultural and business property was first announced in the 2024 Autumn Budget. This was highlighted in our article published in December 2024.
Below is an extract from HM Treasury outlining how the revised rules operate, supported by three practical examples.
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.
From 6 April 2026, the full 100% relief from inheritance tax will be restricted to the first £2.5m of combined agricultural and business property.
Above this £2.5m 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.
This is on top of 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).
Any unused £2.5m allowance on the death of a spouse or civil partner is transferable to a surviving spouse or civil partner. This makes it like the nil-rate band. This means a couple will be able to pass on up to £5m of agricultural or business assets between them, on top of the existing allowances such as the nil-rate band.
The below examples are an assumption based on the £2.5m allowance and nil-rate band and do not take into consideration other 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, the nil-rate band can apply to assets qualifying for the 50% rate of relief on agricultural or business property over the £2.5m allowance. Additionally, the £175,000 residence nil-rate band is tapered-away for estates over £2m, so whether this applies will depend on the facts of the estate.
Example 1: farm owned by a couple either married or in a civil partnership
A farm owned by one or both members of a couple, either married or in a civil partnership, can be passed on tax free up to £5.65m.
A surviving spouse or civil partner can benefit from an additional £2.5m allowance for qualifying agricultural or business assets. This is in addition to any unused nil-rate bands.
This is regardless of whether the farm is owned jointly or solely by one member of the couple. The £2.5m allowance can be transferred to their spouse on death if unused, leaving the surviving spouse with £5m allowance to use against any agricultural assets in their estate.
- Person 1: All assets are transferred to spouse/civil partner benefiting from spouse relief so will be inheritance tax free. Unused £325,000 + £2.5m allowances are transferred to Person 2 on death
- Person 2: £650,000 (made up of £325,000 + £325,000) + £5m (made up of £2.5m + £2.5m)
- Total passed on tax free: £5.65m
If the first death was before 6 April 2026, it will be assumed the entirety of the £2.5m allowance will be available for transfer to the surviving spouse or civil partner.
Example 2: farm owned by two people
Two people (such as siblings) who jointly own a farm will be able to pass on a farm up to £5.65m tax free. That is made up of £650,000, combining each of their standard £325,000 nil-rate bands, and on top of that, a £2.5m tax-free allowance each for agricultural assets in their estate.
- Person 1: £325,000 + £2.5m
- Person 2: £325,000 + £2.5m
- Total passed on tax free: £5.65m
Example 3: farm owned by one person
One person who owns a farm will be able to pass on land and property valued up to £2.825m tax free. That is made up of their standard £325,000 nil-rate band and an additional £2.5m tax-free allowance for agricultural assets in their estate.
Total passed on tax free: £2.825m (£325,000 + £2.5m).