Despite widespread concern across the farming and rural business sectors, the government has confirmed its proposed changes to Inheritance Tax (IHT) Agricultural and Business Property Relief in the draft Finance Bill 2025-26, released on 21 July 2025.

These proposed changes, first announced in the Autumn Budget 2024, are expected to take effect from 6 April 2026 and could have a significant impact on how agricultural property and business assets are passed on after death.

Agricultural Property Relief and Business Property Relief: New £1 Million Cap Introduced

Under the new rules, the current rates of 100% relief on agricultural property and business property will be limited to a combined £1 million per individual. Assets qualifying above this threshold will only receive 50% relief, effectively resulting in a 20% inheritance tax charge (half the standard 40% rate). This applies to:

• Agricultural land
• Farm cottages and farm office buildings
• Business assets used in a farming business or similar trading activity

For married couples or those with a civil partner, this means they could potentially pass on up to £3 million tax-free, including their combined nil rate bands and the new relief allowance.

Impact on Agricultural Shares, Business Assets, and Unlisted Securities

Another major reform affects agricultural shares and interests in companies not listed on recognised stock exchanges, such as AIM. From April 2026, these will only qualify for 50% business property relief regardless of value—removing the 100% relief currently available in many cases.

This will affect estates containing:

• Agricultural shares in unlisted companies
• Property owned by a company controlled by the deceased
• Assets like livestock property subject to trade
• Rearing horses, growing crops, or crop rotation scheme operations not recognised as agricultural purposes

New Payment Flexibility: Instalments Over 10 Years

To ease the transition, the government has confirmed that the 10-year interest-free instalment option for paying inheritance tax will now extend to all qualifying agricultural property and business property. This will apply even where only 50% tax relief is granted.

This change is particularly useful for older farmers or family-run businesses passing on land, farm equipment, or buildings used for agricultural purposes and farming activity.

What This Means for Farmers, Landowners, and Business Owners

With capital gains tax, inheritance tax, and other levies already placing pressure on the next generation of farmers, the reduction in reliefs could trigger difficult decisions around asset sales, lifetime gifts, and succession planning.

These changes are especially relevant where:

• Land farmed under a short term grazing licence is involved
• The market value of assets exceeds £1 million
• Farm cottages and appropriate buildings are leased under a binding contract
• Land occupied with vacant possession becomes part of an estate

Verification successful waiting for HMRC’s final position (once the consultation closes on 15 September 2025) is now a priority for affected families and businesses.

Planning Ahead: Act Now to Prepare for the New Rules

With the relief cap and reduced current rates coming into effect from 6 April 2026, now is the time to review your estate. Consider professional advice to assess the value of your agricultural land, farm buildings, and business assets—especially if you intend to grow crops, run stud farms, or operate other qualifying farming business models.

A full review of:

• Land farmed
• Lease granted terms
• Current transfer arrangements
• The agricultural value of your estate

…will help ensure your property owned is passed on efficiently and in line with your wishes.

Need advice on protecting your estate from these upcoming IHT changes? Contact HLWA today to speak with one of our rural tax and succession planning specialists.

Source: HM Treasury | 22-07-2025