Government backs down on IHT plans for farmers and businesses

The Government has announced a change today to the limit which will apply jointly to the value of assets claimed under agricultural property relief (APR) and business property relief (BPR) which allow for a full exemption on IHT for qualifying agricultural land, and assets subject to business relief. 

Previously this was intended to be £1m, but this is being increased to £2.5m. For assets above this £2.5m threshold, there is a reduced 50% relief. 

As announced in the recent Budget, any unused relief can be passed on to spouse/civil partners potentially allowing up to £5m in qualifying agricultural or business assets to be passed on before paying inheritance tax (on top of existing allowances). 

Andrew Tully, Technical Services Director at Nucleus said:

‘This is a very helpful move for those who intend to pass on business or agricultural assets to family. Raising the threshold will significantly reduce the number of farms and business owners facing higher inheritance tax bills under the reforms, ensuring that only the largest estates are affected. And reflects the pressure which the Government has faced as a result of these proposals. However, it is yet another late change to rules with these changes due to be implemented for 6 April 2026.’

Danni Hewson, AJ Bell head of financial analysis, comments:

“Thousands of farmers and family-owned businesses will be celebrating on news the government has announced a retreat on its inheritance tax plans after months of protests. Combined with changes announced during last month’s Budget, it will allow spouses or civil partners to pass on up to £5 million in agricultural or business assets.

“For months the government had been accused of being tone deaf when it came to the impact IHT changes would have on jobs and livelihoods, with many farmers and business owners warning of the potential impact on local communities and supply chains.

“This decision will feel like an early Christmas present for those who had been forced to consider scaling back investment, selling off assets, or even selling the entire business with the potential for huge job losses. 

“The government has promised to deliver growth and today’s climbdown shows that they have been listening, but it follows months of uncertainty and worry about whether the next generation would be able to take over businesses that their parents had worked hard to create.”

Phil Kinzett-Evans, Partner and Head of Tax at UHY Hacker Young national accountancy group:

“This is a clear last-minute concession from the Government — and it only exists because the original proposals caused such widespread alarm among UK farmers and business owners.”

“Raising the APR and BPR threshold from £1 million to £2.5 million, and allowing it to be transferred between spouses, will undoubtedly help some families. But it does not change the fact that people have spent months planning for a much harsher tax regime.”

“During that period of uncertainty, many families made irreversible decisions — selling land, restructuring businesses or accelerating succession plans — because they believed the rules were settled.”

“Announcing such a significant change this late in the process has real consequences. Once a family business or farm is sold, that decision cannot simply be undone.”

“The Government now says most estates will be unaffected, but inheritance tax is a relatively small part of the UK’s overall tax take. These reforms did not need to be handled in a way that caused so much distress and forced action.”

“Tax policy should give families the confidence to plan long-term, not push them into rushed decisions based on shifting rules.”

Adam Brewer, Senior Investment Director at Rathbones (Exeter office), says:

“Generally, this further dilution of the original punch will likely be welcomed by farmers. However, let’s not forget they are still contending with the usual pressures of hefty capital costs and wafer-thin profit margins. Even the eventual £5m allowance may still fall short of preventing family farms from being broken up, and ongoing political uncertainty only adds to the anxiety. 

“While the higher threshold may feel like a pre‑Christmas reprieve, many farmers still face a hefty inheritance tax bill. This change doesn’t remove the need for robust planning. Decisions around land use, business structure, and valuations will ultimately determine the longevity of the family farm. Families should review succession plans now – timely advice can make the difference between relief and regret.”