Inheritance Tax Relief for Business and Farm Assets: £2.5 Million Cap from April 2026

From April 2026, business owners and farmers can pass on up to £2.5 million each in qualifying assets free of inheritance tax. Married couples and civil partners can combine allowances to pass on up to £5 million. Assets above these thresholds are taxed at 20%, half the normal rate.

Key Facts at a Glance

What's changing	Detail
New relief threshold	£2.5 million per person (up from proposed £1m)
Effective date	April 2026
Combined allowance for couples	£5 million
Tax rate above threshold	20% (half the standard 40% rate)
Assets covered	Qualifying business property and agricultural property
Legislation	Finance Bill 2026

What Are the New Inheritance Tax Rules for Businesses and Farms?

From April 2026, owners of qualifying businesses and agricultural land will be able to pass on up to £2.5 million each to beneficiaries without triggering an inheritance tax charge. This represents a significant increase from the £1 million cap originally proposed in the Autumn Budget 2024.

The change follows sustained campaigning from farmers and business owners across the UK, who argued the lower threshold would force families to sell viable enterprises to meet tax bills.

How Does the Spousal Allowance Work?

Married couples and civil partners can combine their individual £2.5 million allowances. This means a farming couple or business partners who are married could pass on up to £5 million in qualifying assets to the next generation completely free of inheritance tax.

The combined allowance applies where both spouses hold qualifying assets. Proper estate planning is essential to ensure both allowances are fully utilised.

What Happens If My Business Is Worth More Than £2.5 Million?

For business and farm assets exceeding the £2.5 million threshold, inheritance tax applies at a reduced rate of 20%—half the standard 40% rate. This means even larger estates benefit from significant relief compared to other assets.

Example — single owner: A farm valued at £4 million owned by one person would have £2.5 million fully relieved. The remaining £1.5 million would be taxed at 20%, resulting in a £300,000 inheritance tax liability rather than £600,000 at the full rate.

Example — married couple: The same £4 million farm owned jointly by a married couple would be fully covered by their combined £5 million allowance, with no inheritance tax to pay.

Which Assets Qualify for Business Property Relief?

Business Property Relief (BPR) and Agricultural Property Relief (APR) apply to:

• Shares in unlisted trading companies

• Interests in trading partnerships

• Sole trader business assets used in the trade

• Agricultural land and buildings used for farming

• Farmhouses occupied for agricultural purposes

• 
  

Investment businesses, including property letting, generally do not qualify. The assets must have been owned for at least two years before death.

When Do These Changes Take Effect?

The new £2.5 million threshold comes into force in April 2026 and will be legislated through the Finance Bill in early 2026. Business owners and farmers should use the intervening period to review their succession plans and ensure their affairs are structured to take full advantage of the relief.

Frequently Asked Questions

Is the £2.5 million inheritance tax relief per person or per estate?

The £2.5 million threshold applies per person. A married couple can therefore shelter up to £5 million in qualifying business or agricultural assets between them.

Do I still get the nil-rate band on top of business property relief?

Yes. The standard nil-rate band (£325,000) and residence nil-rate band (up to £175,000) remain available alongside business and agricultural property relief, subject to normal rules.

What if I own both a business and a farm?

The £2.5 million cap applies to the combined value of all assets qualifying for Business Property Relief and Agricultural Property Relief. You cannot claim £2.5 million for each separately.

Will the £2.5 million threshold increase with inflation?

The government has not confirmed whether the threshold will be index-linked. This should be clarified when the Finance Bill is published.

Can I gift my business during my lifetime to avoid inheritance tax?

Potentially, yes. Lifetime gifts of business assets can fall outside your estate after seven years, and Business Property Relief may apply if you die within that period. However, Capital Gains Tax implications must be considered. Professional advice is essential.

Does this affect AIM shares?

Shares listed on AIM (Alternative Investment Market) can qualify for Business Property Relief if the underlying company is a trading business. They would count towards your £2.5 million allowance.

How should married couples structure ownership to maximise relief?

Both spouses should ideally hold qualifying assets in their own names to ensure each can use their full £2.5 million allowance. If one spouse owns all the business assets, the surviving spouse's allowance may be wasted. Each situation is different so a solicitor or financial adviser can advise on this and help restructure ownership where appropriate.

What Should Business Owners and Farmers Do Now?

The April 2026 deadline provides time to prepare, but succession planning takes time to implement properly. We recommend:

Reviewing your current position — understand the value of your qualifying assets and how the new rules affect your estate.

Updating your will — ensure your will reflects the new thresholds and makes best use of spousal allowances.

Considering lifetime planning — for estates significantly above £5 million, lifetime gifting strategies may still be appropriate.

Speaking with your adviser — the interaction between inheritance tax, capital gains tax, and income tax requires careful planning.

If you'd like to discuss how these changes affect your business or farm, contact us to arrange a review.

This article was last updated in January 2026. The information provided is for general guidance only and does not constitute financial, tax, or legal advice. Inheritance tax rules are complex and individual circumstances vary. Please consult a qualified adviser before making decisions about your estate.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

Approved by The Openwork Partnership on 22/1/26