Inheritance Tax Reliefs Rises to £2.5m for Businesses and Farmers

Date: January 8, 2026

Inheritance tax relief thresholds for Business Property Relief (BPR) and agricultural property relief (APR) will rise to £2.5m from April 2026. This affects family farms and owner-managed businesses. Spouses/civil partners will be able to pass up to £5m in qualifying assets tax-free between them.

In a significant policy change, the UK Government has confirmed that the threshold at which 100% inheritance tax relief applies for both agricultural and business assets will rise from £1 million to £2.5 million. This will take effect from 6 April 2026. The move is designed to reduce the number of family farms and small businesses exposed to higher inheritance tax. This was first announced under reforms at Budget 2024.

Under the new rules, qualifying assets above £2.5m will continue to receive 50% relief. This means they are subject to an effective inheritance tax rate of up to 20% before other allowances and bands are applied. Couples can transfer any unused relief between them. This allows up to £5m in qualifying agricultural or business assets to pass tax-free on death when combined with existing exemptions such as the nil-rate band.

What the Inheritance Tax Relief Threshold Increase Means for Family Businesses and Farms

The increased threshold affects both agricultural property relief and business property relief. This expands protection not only for traditional family farms but also for a wide range of family-run companies, owner-managed enterprises and small to medium-sized businesses whose assets qualify under the reliefs.

Under the updated regime:

Farms and agricultural estates benefit from full relief on the first £2.5m of qualifying property, with 50% relief thereafter.
Trading and commercial assets of family businesses, including property, equipment, and unquoted shares of qualifying firms are also covered under the business property relief component.
Spouses and civil partners can combine allowances, increasing the effective exemption to £5m before standard inheritance tax applies.

These changes mean many estates will face lower inheritance tax bills and improved succession planning prospects. This will particularly apply for businesses with valuable but illiquid assets that might otherwise have been vulnerable to tax-driven sales. However, we urge an urgent review, to ensure all tax planning reflects the new rules and is correctly executed. Please contact us if you need advice on this.

Inheritance Tax Relief changes – Government Rationale and Legislative Path

According to the official press release, the government acted in response to feedback from farmers, rural groups and business owners. Criticism was that the original threshold was too low and would have created unnecessary tax charges for many family estates. The Treasury and relevant departments say the change sharpens targeting of relief while preserving fiscal integrity, helping fund public services and reduce borrowing.

The revised threshold will be implemented through an amendment to the Finance Bill 2025 and is expected to apply from 6 April 2026 for deaths occurring on or after that date.

Political Reaction and Debate

The government’s announcement, released just before Christmas 2025 drew mixed reactions from across the political spectrum. Some critics argue the timing limited proper parliamentary scrutiny, with opposition figures describing the late-December disclosure as “snuck out” just before the holidays.

Supporters of the policy change, including farming organisations, including the NFU and business groups, had campaigned against the initial £1m threshold, which they said threatened the viability and continuity of many family-run farms and businesses. The revised £2.5m threshold has been welcomed by many as a meaningful climbdown that will help preserve family enterprises and reduce tax-driven asset sales.

However, some commentators argue that smaller farms may still face tax burdens if asset values remain high relative to profitability. This is particularly so in sectors where capital valuation far outstrips cash flow.

What Business Owners Should Do Now to Safeguard their Inheritance Tax Relief

Owners of agricultural assets are being urged to review their estate and succession plans promptly. This is in light of the updated inheritance tax relief thresholds. we recommend assessing:

Whether assets qualify for APR or BPR under current criteria.
Opportunities to maximise relief by restructuring ownership or utilising spousal transfer allowances.
The implications for trusts, lifetime gifting, and inter-generational transfers of family businesses.

The Finance Bill progressing through Parliament and implementation is set for April 2026. This means early planning is essential to secure the most favourable tax outcomes.

How Alexander & Co can Assist with Inheritance Tax Relief

Alexander & Co can assist owner-managed businesses and family farms to plan for updated BPR and APR inheritance tax thresholds. We can review estates to ensure all qualifying assets benefit from the new £2.5 million relief limit.

Our team can assist in maximising spousal allowances, allowing up to £5 million in assets to pass tax-free. We provide guidance on trusts, lifetime gifting, and inter-generational transfers to preserve family wealth. Alexander & Co can advise you to ensures APR and BPR rules are applied correctly before they take effect on 6 April 2026.

Contact Alexander & Co

If you need advice on any of the measures covered in this update, or support with wider tax or business matters, please contact Alexander & Co. You can complete the contact form on this page, or in the following ways:

Phone: 0161 832 4841 or 0207 1670 7220

Email: info@alexander.co.uk

Website: www.alexander.co.uk

You can also use the contact forms on this page.

Our offices are conveniently located in Manchester and London, serving clients across the UK.