The UK Government has increased the inheritance tax relief threshold for agricultural and business assets from £1m to £2.5m, with effect from 6 April 2026. The announcement was issued on 23 December after the Commons had risen for Christmas recess, and was framed as protecting family farms while maintaining contributions from larger estates, according to a joint DEFRA–HM Treasury statement.
Under the revised model, qualifying agricultural and business property will receive 100% relief up to £2.5m per estate, with 50% relief applying above that level. Because the allowance is transferable, spouses and civil partners can pass on up to £5m of qualifying assets between them before inheritance tax is due, in addition to existing nil‑rate bands.
This change amends reforms first set out at the Autumn Budget 2024, which limited full relief to £1m and applied a 50% relief above the allowance. Those reforms also indicated an effective 20% rate on qualifying value over the allowance and permitted payment by instalments over ten years interest‑free for impacted cases.
Government modelling now suggests the number of estates paying more inheritance tax in 2026/27 will be around 1,100, down from about 2,000 under the original proposal. For estates claiming agricultural property relief, the number affected halves from roughly 375 to 185, and officials expect around 85% of such estates to pay no additional inheritance tax under the revised plan.
Ministers say the amendment will be brought forward to the Finance Bill in January 2026. The Treasury has said costings will be set out at the next Office for Budget Responsibility forecast, though external estimates indicate an approximately £130m reduction in expected receipts compared with the earlier design.
Industry reaction was swift. The National Farmers’ Union said the higher threshold would remove many family farms “from the eye of a pernicious storm”, describing the shift as a significant relief after more than a year of campaigning.
The Country Land and Business Association welcomed the move while warning it still leaves asset‑rich, low‑margin businesses exposed. CLA President Gavin Lane said the announcement “limits the damage” rather than eliminates it, urging ministers to go further.
The policy shift follows sustained protests and unease among some Labour backbenchers representing rural seats. Markus Campbell‑Savours, MP for Penrith and Solway, lost the Labour whip on 3 December after voting against the earlier plan; he now sits as an independent.
Opposition parties argued the government had acted too late. Conservative leader Kemi Badenoch called the change a “huge U‑turn” and pledged to keep pressing for wider reliefs; the Liberal Democrats’ Tim Farron said his party would seek amendments to reduce the burden further; Reform UK’s Richard Tice characterised the move as insufficient.
For practitioners, today’s change means couples can pass up to £5m in qualifying agricultural and business assets free of inheritance tax, on top of the nil‑rate band and residence nil‑rate band where applicable. Government guidance also indicates that, above the allowance, the effective rate on qualifying value is up to 20% and can be paid over ten years by instalments, easing liquidity pressures at succession.
DEFRA and the Treasury add that, combining the new £2.5m per‑estate allowance with existing nil‑rate bands, some married couples could pass on farms worth in the region of £5.65m without inheritance tax, depending on asset mix and eligibility. Detailed costings will follow in the Spring forecast, and statutory effect will come via Finance Bill amendment.
Policy Wire view: the revision materially narrows the population in scope while preserving a revenue‑raising reform compared with the pre‑2024 regime. Finance directors in farm businesses should refresh succession plans, re‑check valuations against the new allowance, and map cashflow for any residual liability ahead of the April 2026 start date.