Lawyers and finance experts have welcomed the government’s announcement that the Agricultural and Business Property Reliefs threshold will increase to £2.5 million from April, allowing spouses or civil partners to pass on up to £5 million in qualifying agricultural or business assets between them.
The government set out its plans in a joint statement from the Department for Food & Rural Affairs, HM Treasury, the Department for Business and Trade, and Emma Reynolds MP on 23 December.
“Following the reforms to Agricultural and Business Property Reliefs announced at Budget 2024, the government has listened to concerns of the farming community and businesses about the reforms,” the statement said.
“Having carefully considered this feedback, the government 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 change will be introduced to the Finance Bill in January and will apply from 6 April.”
Raising the threshold will significantly reduce the number of farms and business owners facing higher inheritance tax bills under the reforms, ensuring that only the largest estates are affected.
The change means the number of estates claiming agricultural property relief (including those also claiming business property relief) affected by the reforms in 2026-27 will be halved, from 375 to 185.
Most estates will benefit, with inheritance tax cut by hundreds of thousands of pounds for many families. The number of estates affected by the reforms claiming only business property relief – excluding those holding only AIM shares – will fall by a third, and around 85% of estates claiming agricultural property relief in 2026-27, including those that also claim for business property relief, are forecast to pay no more inheritance tax on their estates.
Paul Fairbairn, head of private wealth at top 100 law firm Cripps, said the plan is “a step in the right direction.” He added:
“The original £1m cap threatened smaller farms and family-run businesses with a tax burden that they were never built to withstand. Raising the threshold will protect many family farms and businesses, giving them the breathing space they need to plan for the next generation.
“Whilst it doesn’t completely reverse changes announced last year and due to come into force in April 2026, it’s a rare example of tax reform from this government that supports continuity rather than undermining it.
“It will, however, not go far enough to protect many trading businesses, which create jobs and drive economic activity. A full reversal of this misguided policy would have been a far better Christmas present.”
Emily O’Donnell, head of landed estates and partner in the private client advisory team at Birketts LLP, also welcomed the announcement – but agreed that difficulties remain.
She said:
“A big thank you to the CLA and NFU who have put so much effort into lobbying the government on this issue but while this announcement is positive news to many, it doesn’t necessarily solve the difficulties facing many farmers and landowners in relation to their succession arrangements.
“Hopefully, the government will continue to listen to industry experts and that other provisions in the Finance Bill might be amended. Importantly, we would welcome the government rethinking the position on the allocation of the APR/BPR allowance which as currently drafted, will give rise to enormous practical difficulties and delays in administering estates.”
Toby Tallon, tax partner at professional services group S&W, said the change of heart will be “gratefully received” by many of his clients. “The reduction in inheritance tax relief first announced in the October 2024 budget left many living under a cloud of uncertainty as to whether they had a future,” he commented.
“Farms and businesses that had been in families for generations faced mortgaging their future growth prospects or having to sell up to pay huge bills on the current owner’s death.”
However, the increase in the allowance from £1 million to £2.5 million ill take many farms and businesses out of what Tallon said is “one of the country’s least popular taxes.”
He added:
“It’s another step in the right direction, but there is still a long way to go to provide the support our farmers and small business owners need to thrive for generations.
“Restricting the inheritance tax reliefs on the transfer of qualifying family businesses and farms is an act of economic self-harm akin to imposing tariffs on your domestic industry. At a macro level it will result in lower tax revenue, fewer jobs, and lower economic growth. At an individual level, it puts businesses, their employees and their owners under significant stress and risk.
“In my view, and many others, it’s simply a bad policy that should be scrapped, not just amended. At the very least, the government should put a pause on these proposals, to properly consult on the damage it will do to individuals, communities and the country.”
