Inheritance Tax Changes for Farmers: Government Raises Relief Threshold to £2.5 Million

Why Inheritance Tax Matters for British Farmers

Inheritance tax has become one of the most contentious issues facing British farming families in recent months. Agricultural Property Relief (APR) was introduced in 1984 to help farmers pass their land down through generations without having to pay inheritance tax, ensuring that farms were not forced to break up, thus allowing the land to remain in agricultural use. The changes announced in 2024 sparked widespread protests and concern across rural communities.

The Government’s Latest Decision

The government announced on 23 December that the level of the Agricultural and Business Property Reliefs threshold will be increased from £1m to £2.5m when it is introduced in April 2026. This allows spouses or civil partners to pass on up to £5m in qualifying agricultural or business assets between them before paying inheritance tax, on top of existing allowances. The change represents a significant shift from the original proposal announced in the Autumn Budget 2024.

What the Changes Mean for Farming Families

Above the £2.5 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. For married couples or civil partners, the combined relief could protect farms worth up to £5.65 million when other allowances are included.

The Road to This Decision

Farming groups, including the National Farmers’ Union (NFU), argued the government’s proposed changes to inheritance tax posed a risk to food security, expressing concerns that if productive farms have to be broken up or sold to pay inheritance tax supply chains would be disrupted. Following a long-fought campaign by the NFU, the government confirmed the threshold for inheritance tax changes will be raised to £2.5 million. The NFU campaigned extensively, with over 270,000 people supporting their calls for change.

Looking Ahead: Impact and Significance

Following the reforms announced at Budget 2024, the government listened to concerns of the farming community and businesses about the reforms, and having carefully considered this feedback, is going further to protect more farms and businesses, while maintaining the core principle that the most valuable agricultural and business assets should not receive unlimited relief. The changes will be introduced through an amendment to the Finance Bill in January 2026. While farming groups have welcomed the increase, some continue to advocate for further reforms to protect elderly and vulnerable farmers from what they describe as an unfair policy.