Farm Inheritance Tax: APR and BPR Changes Explained

Quick Summary

• Current rules (until April 2026): Qualifying agricultural and business property can receive 100% relief from IHT with no upper limit
• New rules (from April 2026): 100% relief capped at £1 million combined; 50% relief above (effective 20% IHT rate)
• Spousal transfer: The £1m allowance can be transferred between spouses (announced November 2025)
• Index-linking: The £1m threshold will rise with CPI from April 2030
• Payment options: IHT on APR/BPR assets can be paid over 10 interest-free annual instalments

What Is Agricultural Property Relief?

Agricultural Property Relief (APR) reduces or eliminates inheritance tax on agricultural property when someone dies. It applies to:

• Farmland and farm buildings
• Farmhouses (where the occupier works the land)
• Farm cottages occupied by farm workers
• Land managed under environmental agreements (extended from April 2025)

Qualifying Conditions

To qualify for APR, the property must:

• Be part of a working farm (not just land that happens to be agricultural)
• Have been owned by the deceased for at least 2 years before death (if occupied by them) or 7 years (if let to a tenant)
• Be located in the UK, Channel Islands, Isle of Man, or EEA

What Is Business Property Relief?

Business Property Relief (BPR) reduces inheritance tax on business assets. For farms, BPR often applies alongside APR to cover:

• Farm machinery and equipment
• Livestock
• Crops and produce
• Trading businesses operated from the farm (e.g., farm shops, diversified activities)

The April 2026 Changes Explained

The New £1 Million Cap

From 6 April 2026:

• First £1 million: 100% relief (no IHT payable)
• Above £1 million: 50% relief (effective 20% IHT rate)
• Combined cap: The £1m limit covers both APR and BPR together

Example Calculation

Farm estate value: £2.5 million qualifying for APR/BPR

Who Will Be Affected?

Government Estimates

The government claims approximately 27% of estates claiming APR will be affected by the changes, with around 520 estates paying more IHT in 2026/27 than they would have under current rules.

NFU Counter-Analysis

The National Farmers' Union disputes these figures. Their analysis suggests:

• 75% of commercial family farms will be above the £1m threshold
• Average English farm size (87 hectares) at current land values exceeds £1 million
• Government figures include non-commercial holdings and bare land, skewing the average down

New Provisions Announced November 2025

Spousal Transfer of Allowance

The Chancellor announced that the £1 million APR/BPR allowance will be transferable between spouses and civil partners. This means:

• If the first spouse to die doesn't use their full £1m allowance, the unused portion transfers to the surviving spouse
• A surviving spouse could potentially have up to £2 million of APR/BPR at 100% relief
• This mirrors how the standard nil-rate band already works for married couples

Index-Linking from 2030

The £1 million threshold will be increased in line with CPI inflation from April 2030. This prevents the allowance from being eroded by inflation over time.

10-Year Interest-Free Instalments

IHT on agricultural and business property can be paid in 10 equal annual instalments, interest-free. This is designed to prevent forced sales of farms to pay the tax bill.

For Bereaved Families: What You Need to Know

Deaths Before April 2026

If your loved one died before 6 April 2026, the current rules apply:

• 100% relief available on all qualifying agricultural and business property with no cap
• Claim promptly: APR and BPR must be claimed on the inheritance tax return (form IHT400)
• Get professional valuations: HMRC may challenge values, especially for farmhouses

Deaths From April 2026 Onwards

For deaths occurring on or after 6 April 2026, executors should:

• Get accurate valuations: The £1m threshold makes precise values critical
• Check spousal transfer: If the first spouse died after April 2026, check if unused allowance transfers
• Consider instalment option: If IHT is due, the 10-year interest-free payment plan may help
• Seek professional advice: Farm estates are complex; specialist agricultural tax advisers are recommended

Common Questions

Does the Farmhouse Qualify?

Farmhouses can qualify for APR, but only if the occupier is actively farming the land. HMRC applies the "character appropriate" test - the farmhouse must be appropriate to the farming operation in size and nature. Large or modernised farmhouses are frequently challenged.

What About Let Land?

Agricultural land let to tenant farmers can qualify for APR at either 100% or 50% depending on the tenancy type:

• 100% relief: Land let on tenancies starting after 1 September 1995
• 50% relief: Land let on older tenancies with security of tenure

Can We Avoid the New Rules?

Some families are considering gifting farmland during their lifetime. However:

• Gifts must be made at least 7 years before death to escape IHT entirely
• The giver must not continue to benefit from the gifted property ("gift with reservation" rules)
• Capital Gains Tax may be triggered on lifetime transfers
• Professional advice is essential before making any decisions

Key Takeaways

• From April 2026, APR and BPR will be capped at £1 million for 100% relief
• Above £1 million, 50% relief applies (effective 20% IHT rate)
• The £1m allowance is transferable between spouses
• IHT can be paid over 10 interest-free annual instalments
• Deaths before April 2026 benefit from current unlimited relief
• Professional valuations and specialist tax advice are essential for farm estates
• The NFU estimates 75% of commercial family farms will be affected, despite government claims of 27%

Related Guides

• Autumn Budget 2025: What Actually Changed
• Inheritance Tax Basics: A Complete Guide
• Inheritance Tax Thresholds Frozen Until 2030
• Probate Delays and IHT Interest Charges