Inheritance Tax Relief threshold set to increase to £2.5 million

The UK government has confirmed that the threshold for Agricultural Property Relief (APR) and Business Property Relief (BPR) will rise significantly from £1 million to £2.5 million, effective from April 2026.

This adjustment means that spouses or civil partners will be able to transfer up to £5 million of qualifying agricultural or business assets between them without incurring inheritance tax (IHT), in addition to existing allowances.

The move follows extensive consultation aimed at safeguarding family farms and trading businesses, while ensuring that relief remains proportionate and does not extend without limit to the highest-value estates.

The measure will be legislated in the Finance Bill this January and will apply from 6 April 2026. Government forecasts suggest that the number of estates impacted by the reforms, those claiming APR alongside BPR, will fall by half, from 375 to 185 in 2026–27. Similarly, estates claiming only BPR (excluding AIM share holdings) are expected to reduce by around one-third.

Crucially, around 85% of estates claiming APR, including those also claiming BPR, are projected to pay no additional IHT under the revised rules. For many families, this could mean savings of hundreds of thousands of pounds.

Environment Secretary, Emma Reynolds, said: “We have listened closely to farmers across the country and are making changes to protect more ordinary family farms. Larger estates will contribute more, but we remain committed to supporting the farms and businesses that underpin Britain’s rural economy.”

Sharon Omer-Kaye, Partner at James Cowper Kreston, welcomed the announcement and commented: “While this is a positive step, sad that it has taken since October 2024, for the government to realise that the level first introduced was going to cause a heavy burden for working people, alongside stifling entrepreneurs and farmers. Many of those affected have spent considerable time worrying about the impact as well as the cost of taking advice to restructure their affairs to enable them to pass on their business to the next generation, so a last-minute change, although welcome, is a bit too late for many”.

At James Cowper Kreston we remain committed to supporting the agricultural and rural business community. Our specialist team can help you navigate these changes, maximise available reliefs, and plan effectively for the future. If you would like tailored advice or to discuss your succession plans, please get in touch with one of our Farms and Estates experts here.