Changes to Agricultural Property Relief (APR) and Business Property Relief (BPR)

Inheritance Tax Reforms Effective April 2026

Update (January 2026)

The 2025 Budget confirmed that the proposed changes below will continue to be introduced with effect from April 2026. Draft legislation was published in July 2025 and the latest Budget confirmed only one change to those draft rules. However, in December 2025, the government announced the allowance would increase from £1 million to £2.5 million per estate.

From April 2026, the first £2.5m of combined business and agricultural assets will continue to attract no Inheritance Tax (IHT), but for assets over £2.5m IHT will apply with 50% relief, at an effective rate of 20%. Prior to the December 2025 update, the Country Land and Business Association (CLA) warned that the original £1 million cap could impact 70,000 farms. With the allowance now raised the number of affected estates is expected to fall sharply, though the precise impact on the largest commercial farms remains to be modelled.

The most significant change to IHT, coming in April 2026, is a reform of Agricultural Property Relief (APR) and Business Property Relief (BPR). Currently qualifying assets can attract relief up to 100% of their value from IHT with no overall cap on how much relief can be claimed.

It is proposed that the relief will continue only for the first £2.5 million of combined agricultural and business property, with a reduced rate of 50% relief thereafter.

Furthermore, a reduced 50% relief will also apply for shares designated as ‘not listed’ on the markets of recognised stock exchanges, such as the AIM market from April 2026.

What is changing?

From 6 April 2026, a new limit of £2.5 million will apply per taxpayer for the combined value of property qualifying for 100% BPR and 100% APR.

Where the qualifying conditions are met, the current rate of 100% will continue to be available on the value covered by this allowance, but any excess value will be limited to relief at 50%.

The draft legislation originally prohibited the allowance from being shared, but at the Budget 2025, the government partially amended its original proposals and announced that the allowance would become transferable between spouses and civil partners.
It will be allocated against property qualifying for 100% relief only – so assets that only qualify for 50% relief under the normal rules will not count towards the £2.5 million limit.
The allowance will apply to property in the estate at death together with taxable gifts made in the 7 years prior to death.
Where multiple assets qualify for 100% relief, the allowance will be allocated proportionately based on value.
The allowance also applies to lifetime transfers which trigger an immediate IHT charge, such as gifts onto a trust.

Trustees of certain trusts are subject to IHT periodically and are able to claim both APR and BPR. From April 2026 these trustees will also have a £2.5m limit. Whilst existing trusts are expected to receive a £2.5m limit per trust, rules will be introduced to ensure the limit is divided by the number of trusts set up on or after 30 October 2024.

APR is also being extended to include environmental land management within its scope from April 2025, where land is managed under an environmental agreement with the UK government or other government departments and bodies. This was seen as a key development in incentivising activities which support the UK’s climate targets.

Are there any recent updates to these changes?

Following the government’s recent adjustment of the £1 million allowance to £2.5 million, the wider rules to be implemented from April 2026 remain set, the key details are:

The £2.5m allowance will refresh once every 7 years, in the same way the nil rate band does, for individuals. For trusts subject to Inheritance Tax, it will refresh once every 10 years.
Transfers of assets made before Budget day (30 October 2024) are not affected by the new rules.
Transfers between 30 October 2024 and 6 April 2026 are subject to transitional rules, with a wide number of permutations.
IHT on all APR and BPR property can be payable in instalments without interest being charged.

What are the changes likely to mean for those affected?

The changes will have a significant impact on the IHT payable by most estates where the value of qualifying assets is more than £2.5 million. The Chancellor also confirmed to freeze the main and residence nil-rate band to 2030 rather than 2028.

We expect to see a rush of landowners and farmers to review their assets and consider succession plans between now and April 2026. For some, making these plans now and resolving to give away assets during their lifetime to the next generation may be more appealing than it has been previously, although it can lead to more capital gains tax being paid by their beneficiaries when the assets are ultimately sold.

What can I do now?

It is difficult to know what changes will be made to IHT in the future. In comparison to other taxes, the legislation has been relatively unchanged for 40 years.

If you think your estate will be subject to IHT when you pass away then the first immediate step is to take advice on how the tax will apply to you. There will be a number of options available to reduce the impact of IHT, both during your lifetime and by making provisions in your Will.

If your estate is reliant on APR or BPR then it may be worth considering if any further steps should be taken now. For example, if your estate surpasses the 2.5m allowance then it would be prudent to make sensible lifetime gifts of qualifying assets, either directly to your intended beneficiaries or onto a trust for their benefit. This type of action is not without consequences and so detailed advice should be taken before you proceed.

Many farming and business owners will have assets earmarked for the next generation and may be comfortable making that gift now to take advantage of the existing rules and protect their family from any changes in the future. Such a gift has a number of other consequences, such as a loss of income from that asset and other tax implications, capital gains tax in particular.

Price Bailey’s experts are positioned to discuss your unique situation and advise accordingly on individual matters such as giving away assets now, and/or changing your Will, or even changing your asset base. There will be no single answer that is right for everyone. Most IHT planning involves a 7-year window until it is fully effective – meaning the sooner our clients act, the better.

If you would like to discuss your estate and the potential impact of any future changes then please speak to us today. Equally, our comprehensive IHT frequently asked questions guide may assist you.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.

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