Farra is a death administration assistant for UK families. Get step-by-step guidance for registering a death, applying for probate, notifying banks, and managing bereavement admin. From essential documents to practical checklists, Farra simplifies estate paperwork and funeral-related tasks so you can focus on what matters.
Since 6 April 2026, Agricultural Relief and Business Relief have been capped at £2.5 million combined for 100% IHT relief. Above £2.5m, 50% relief applies (a 20% effective tax rate). Deaths before 6 April 2026 use the earlier unlimited 100% relief rules.
Major Change: April 2026
These changes were announced at the Autumn Budget in October 2024, when the allowance was to be £1 million. The government raised it to £2.5 million on 23 December 2025, and it took effect on 6 April 2026 under Finance Act 2026. Only the first £2.5 million of qualifying agricultural and business property now receives 100% relief from inheritance tax. HMRC estimates around 185 estates a year pay more inheritance tax as a result, and that roughly 85% of estates claiming agricultural relief pay no additional inheritance tax.
Agricultural Property Relief (APR) reduces or eliminates inheritance tax on agricultural property when someone dies. It applies to:
To qualify for APR, the property must:
Business Property Relief (BPR) reduces inheritance tax on business assets. For farms, BPR often applies alongside APR to cover:
For deaths on or after 6 April 2026:
Farm estate value: £4 million qualifying for agricultural or business relief
| Component | Deaths before 6 April 2026 | Deaths from 6 April 2026 |
|---|---|---|
| First £2.5 million | 100% relief = £0 IHT | 100% relief = £0 IHT |
| Remaining £1.5 million | 100% relief = £0 IHT | 50% relief = £750k taxable |
| IHT at 40% on taxable amount | £0 | £300,000 |
Nil-Rate Bands Still Apply
The standard nil-rate band (£325,000) and residence nil-rate band (£175,000 if passing the home to descendants) still apply on top of the agricultural and business relief allowance. A married farming couple who can use both £2.5 million allowances and both nil-rate bands could have a substantial part of the estate free from IHT, though the residence nil-rate band is tapered away entirely on estates above £2.35 million.
When the allowance was raised to £2.5 million in December 2025, the government put the number of estates paying more inheritance tax as a result of the reform at around 185 a year, down from the 375 estimated under the original £1 million allowance. It also said roughly 85% of estates claiming agricultural relief would pay no additional inheritance tax. No official figure is published for the proportion of working family farms affected, as distinct from all estates claiming the relief.
Unused allowance is transferable between spouses and civil partners. This was not part of the original October 2024 announcement, which said the allowance would not be transferable; it was added at the Budget in November 2025. It means:
The allowance is due to be increased in line with CPI inflation from 6 April 2031.
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.
If your loved one died before 6 April 2026, the current rules apply:
For deaths occurring on or after 6 April 2026, executors should:
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.
Agricultural land let to tenant farmers can qualify for APR at either 100% or 50% depending on the tenancy type:
Some families are considering gifting farmland during their lifetime. However:
Where the rules are set out
The current rules are in HMRC's guidance on Agricultural Relief for Inheritance Tax and Business Relief for Inheritance Tax. The allowance and the 50% rate above it were enacted by Finance Act 2026 and apply to deaths on or after 6 April 2026.