Inheritance Tax is often a sensitive and emotive issue for all individuals, but perhaps especially so when it involves family farms or businesses. The Finance Bill 2025/26 (the Bill), which becomes effective on 06 April 2026, brings significant changes to Agricultural Relief (AR) and Business Relief (BR). The draft Bill has recently been published, which means there has never been a better time to plough on with your inheritance tax planning.
Inheritance Tax Changes 2026: Key Headlines from the Finance Bill
Currently, a relief of 50% or 100% is available against the full value of certain qualifying agricultural property and business property. However, in the Autumn 2024 Budget, Rachel Reeves announced that new rules would be introduced to create a combined cap of £1million for assets that are eligible for AR and BR at 100%, with the balance of such qualifying assets above £1million benefitting from relief at only 50%.
How the £1 Million Cap Works for AR and BR Assets
This £1million allowance will only apply to the value of property that would currently qualify for 100% relief. Further, where the combined value of the property exceeds £1million, the 100% rate will be applied proportionately to the AR and BR assets. Any property that currently qualifies for 50% relief will continue to qualify for that relief under the new rules and will not use up any of the £1million allowance.
Currently, certain categories of relevant business property qualify for 100% BR, including AIM shares. However, from 06 April 2026, AIM shares are automatically subject to a 50% rate of relief, regardless of their value.
Agricultural and Business Relief Changes: The Devil is in the Detail
Naturally, there has been some consternation amongst the farming community and business owners about what this means for the future of their livelihoods. Now, the draft Bill has been published and has provided further detail on exactly how the rules around AR and BR will change.
The draft Bill has confirmed that the relief allowance is frozen at £1million until 06 April 2030, but after that date it will increase annually in line with the Consumer Prices Index.
Similar to the current lifetime gifting rules, where gifts of AR and BR assets have been made, the 100% relief allowance of £1million for individuals will be renewable every seven years. For transfers that occur on death, the 100% relief allowance is applied proportionately across all qualifying AR and BR property.
All relevant property that attracts AR and/or BR will qualify for the Inheritance Tax instalment payment option. This system is already in place for taxable assets post-death and allows people to pay Inheritance Tax in instalments over 10 years. However, interest is applied to tax that is being paid using the instalments option, but the draft Bill has confirmed that there will be interest relief on instalments of Inheritance Tax relating to property that benefits from AR and/or BR. This change should hopefully ease some of the cash flow pressures that individuals, who had been counting on the 100% relief on all qualifying property, had been concerned about.
One of the most contentious points that the draft Bill has raised is in relation to allowing the £1million to be transferred between spouses and civil partners. The current rules on Nil Rate Bands (including the Residence Nil Rate Band) allows spouses and civil partners to use any unused Nil Rate Band allowance from their deceased spouse, and many people have argued that the same rules should apply to the £1million allowance being introduced on AR and BR qualifying property. However, the draft Bill has made it clear that the £1million allowance will not be transferable, and critics have suggested that, by not following the same rules as the Nil Rate Bands, this will add additional complexity and costs to Estate planning and Will drafting. The Government has said that to allow the £1million allowance to be transferable would bring too high a cost to the Government coffers, and that the need to fix the public finances is greater than the concern about increased Estate planning costs.
Impact on Trusts
For individuals looking to carry out Estate Planning using Trusts, it is also worth mentioning that the £1million limit will apply to Trusts, and for a Settlor creating multiple Trusts, the £1million limit will be divided between the multiple Trusts in chronological order, until the value of the allowance has been fully used. This means that once the £1million allowance has been fully allocated, no further relief will be available for subsequent Trusts that the Settlor establishes.
Estate Planning Actions to Take Before April 2026
With the AR and BR changes currently scheduled to come into force in just over six months, there is no time like the present to consider your Estate planning.
First things first, review your Will. If you had been relying upon AR or BR to pass assets Inheritance Tax free, then now is the time to review your Will with a professional, so that you can fully consider the impact of the changes and what strategies can be used to mitigate your Estate’s Inheritance Tax liability.
You’ll need to sit down with a qualified professional to consider your assets and to consider whether you should lock in existing reliefs by carrying out lifetime gifting or creating Trusts. What’s more, they’ll be able to work with you to provide a tailored succession plan that creates a smooth financial transition for your Beneficiaries and, most importantly, help you to avoid costly mistakes or unintended tax traps.
In short, the Finance Bill 2025/26 is reshaping the Inheritance Tax landscape for family farms and businesses. However, with thoughtful and proactive planning and a little help from us, you can still navigate this transition effectively.
How can we help
For further information on effective Estate Planning, or to discuss the issues raised in this article, please contact us to speak to a member of our Private Wealth and Inheritance team.
