Update on Inheritance tax for local farmers
Update on Inheritance tax for local farmers
Seemingly in the Christmas spirit of giving, the Government announced on 23rd December 2025 that they are increasing the limit of relief from Inheritance Tax on farming and business assets from £1million to £2.5million.
The story so far…
In the past, farming families have been able to rely on more comprehensive reliefs from inheritance tax (“IHT”) when passing their farms down to their chosen successors. As from April 2026, they now face a potential tax bill.
In October 2024, the government introduced limits to the available IHT relief known as Agricultural and Business Property Relief (“APR” and “BPR”) on farming and business assets. It was originally proposed that from April 2026 estates could claim this relief on farming and business assets combined to a value of £1million APR and BPR. The value of assets above this limit would instead receive only 50% relief i.e. in effect the IHT rate would be 20% rather than 40% if no other reliefs apply.
In November 2025, the government allowed this relief to be transferrable between spouses. This means that if a spouse dies and leaves all their farming and business assets to the surviving spouse, the estate of the survivor can claim the unused tax allowance from the first spouse’s estate.
Now, thanks to the sustained plea by our farming communities the Government is increasing this £1 million threshold to £2.5million. For married couples, this will allow them relief of up to £5 million on farming and business assets which they can pass to the next generation free of IHT (in addition to their Nil Rate Bands of £325,000 each).
While this increase will not help every family farm, it does better take into account the rising value of land, a farm’s lack of liquid cash to pay IHT and the value of farming stock and machinery.
At present, we have not had sight of the changes to the draft legislation. However, we do wait with bated breath and the proof will be in the pudding.
How this may affect you
While these changes still allow farming families the option of waiting until both husband and wife have passed before passing the farm onto their successors, this approach is not always advisable, particularly if the surviving spouse is no longer actively involved in the farming activities or loses their mental capacity or resides in a care home.
For the best advice, please contact one of our specialist Private Client advisors, Emma Sezer or Mollie O’Connor directly for a consultation and review of your Current Will.
(This article is not intended to be comprehensive or to provide specific legal advice. It should not be relied upon in the absence of specific advice given in relation to particular circumstances.)
