Agricultural and Business Property Relief IHT Reform April 2026
The April 2026 reform to Agricultural Property Relief (APR) and Business Property Relief (BPR) -- the new £1m combined cap, the 50% relief above it, and estate planning strategies for farmers and business owners.
The pre-April 2026 position
Before 6 April 2026, Agricultural Property Relief (APR) and Business Property Relief (BPR) were among the most generous reliefs in the Inheritance Tax (IHT) system, with no monetary cap.
Agricultural Property Relief provided:
- 100% relief on the agricultural value of qualifying agricultural property (farmland, farm buildings, farmhouses used in connection with farming).
- 50% relief in some cases (e.g. let agricultural land where the tenancy predates 1 September 1995).
Business Property Relief provided:
- 100% relief on interests in unincorporated businesses, shares in unquoted companies (including AIM-listed shares), and assets used in a qualifying business.
- 50% relief on controlling shareholdings in quoted companies and land/buildings used in a business owned separately from it.
These reliefs could be combined without limit. A farm worth £10 million could pass IHT-free. An unquoted family company worth £20 million could pass with no IHT. The absence of a cap meant the reliefs disproportionately benefited very large estates.
The April 2026 reform
The Autumn Budget 2024 announced fundamental reforms to APR and BPR, taking effect for deaths on or after 6 April 2026.
The £1 million combined cap
From 6 April 2026:
- The first £1 million of combined qualifying APR and BPR property receives 100% relief (no IHT).
- Value above £1 million receives 50% relief -- meaning only 50% of the excess is included in the taxable estate.
That 50% that is included in the estate is taxed at the standard 40% IHT rate (assuming the estate has already used the nil rate band). The effective IHT rate on value above the £1 million cap is therefore:
- 50% (the included fraction) x 40% (IHT rate) = 20% effective IHT rate.
The £1 million cap applies per individual and covers the combined value of APR and BPR qualifying assets in that person's estate.
Which assets use the cap first?
Where an estate contains both APR and BPR qualifying assets, and the combined value exceeds £1 million, the reliefs must be applied proportionally. HMRC guidance specifies that the £1 million allowance is allocated between APR and BPR assets in proportion to their respective qualifying values.
For example, if an estate has £600,000 APR qualifying assets and £900,000 BPR qualifying assets (combined £1.5 million, well above the cap), the £1 million allowance is split:
- APR share: £1m x (600 / 1,500) = £400,000 fully relieved.
- BPR share: £1m x (900 / 1,500) = £600,000 fully relieved.
- Remaining APR: £200,000 at 50% relief (£100,000 in estate).
- Remaining BPR: £300,000 at 50% relief (£150,000 in estate).
Worked example
Facts: A farmer dies in October 2026 with the following estate:
| Asset | Value | APR/BPR | Notes |
|---|---|---|---|
| Farmland (owned freehold) | £1,800,000 | APR 100% qualifying | Farmed in hand |
| Farm buildings | £200,000 | APR 100% qualifying | |
| Farmhouse | £400,000 | APR 100% qualifying | Appropriate to farm |
| Other assets (house, cash) | £500,000 | No relief |
- Total APR qualifying assets: £2,400,000
- Other assets: £500,000
- Total estate: £2,900,000
- Nil rate band: £325,000 (assumed unused)
- RNRB: £175,000 (home passes to child)
IHT calculation under April 2026 rules:
-
APR qualifying assets: £2,400,000
-
First £1m of APR: 100% relief = £0 in estate.
-
Remaining £1,400,000 at 50% relief: £700,000 included in estate.
-
Non-APR assets: £500,000 included in estate.
-
Gross estate in IHT calculation: £1,200,000
-
Less nil rate band: (£325,000)
-
Less RNRB: (£175,000)
-
Chargeable to IHT: £700,000
-
IHT at 40%: £280,000
Before April 2026, with 100% APR on all £2.4 million of farmland, the chargeable estate would have been £500,000 - £325,000 - £175,000 = £0 and IHT would have been nil.
The additional IHT cost of the reform in this example is £280,000.
Farmer and business owner reaction
The announcement of the cap in October 2024 provoked significant protest from the agricultural sector. Farming unions including the NFU argued that farmland values -- inflated by historic low interest rates and demand from non-farming investors -- mean that even a moderately sized working farm could easily breach the £1 million cap, particularly in regions where land values are high (south-east England, East Anglia).
Critics noted that unlike a business selling at death, a farm cannot be partially sold without damaging the viable unit -- the liquidity to pay IHT on inherited farmland may simply not be available without breaking up the farm.
The government's position is that 100% of farms within a smaller size range will remain unaffected (agricultural land with APR value under £1 million), and that the highest-value estates will pay a relatively low 20% effective rate on the excess.
Planning strategies following the reform
1. Spouse exemption and splitting estates
Assets passing to a surviving spouse or civil partner are exempt from IHT (the spousal exemption is unlimited and unchanged). Each spouse can individually hold £1 million of qualifying property with full relief. By structuring ownership so each spouse holds £1 million, the combined fully-relieved amount is £2 million.
This requires genuine joint or separate ownership -- not simply a plan on paper. Existing wills and ownership structures should be reviewed.
2. Potentially Exempt Transfers (lifetime gifts)
Gifts made more than 7 years before death are potentially exempt transfers (PETs) and fall outside the estate entirely. Gifts of qualifying agricultural land or business property made to children or grandchildren in the owner's lifetime will avoid IHT entirely if the donor survives 7 years.
Gifts within 3 to 7 years attract tapered relief (taper relief ranges from 80% at 3-4 years to 20% at 6-7 years). APR and BPR may still apply to the gifted asset in the donor's estate during the 7-year period if the donee continues to use it qualifying.
3. Business Property IHT insurance
Term insurance can be written in trust to provide a cash sum on death to meet an IHT liability. "IHT insurance" policies are commonly structured as decreasing term insurance matching the expected liability over a 7-year gifting period. For estates where the IHT liability on farm assets is now predictable (20% on excess over £1m), a fixed-sum policy may be more appropriate.
Insurance premiums are not deductible but may be more economical than selling farm assets.
4. Trust planning
Gifts into trust are chargeable lifetime transfers (CLTs) for IHT purposes, but APR and BPR can still apply to reduce the value transferred. Placing qualifying assets into a trust can reduce the estate while preserving the use of the land for the next generation. Trusts are complex and have their own ongoing IHT charges (periodic charges at 10-year anniversaries, exit charges), so specialist advice is essential.
5. Interaction with RNRB
The Residence Nil Rate Band (RNRB) of up to £175,000 per person remains available where a main residence is passed to direct descendants. However, the RNRB tapers at £1 for every £2 of estate over £2 million net. Large farm estates -- even after APR/BPR -- may see RNRB reduced or eliminated.
Sources
- HMRC: Agricultural Property Relief (IHT)
- HMRC: Business Property Relief (IHT)
- HM Treasury: Autumn Budget 2024 -- APR/BPR reform
- NFU: Family farm tax
Frequently asked questions
What is the new APR/BPR cap from April 2026?
From 6 April 2026, a combined cap of £1 million applies to Agricultural Property Relief and Business Property Relief taken together. The first £1 million of qualifying agricultural and business property receives 100% relief (effectively IHT-free). Value above £1 million receives 50% relief -- meaning 50% of the excess is included in the taxable estate at the standard 40% IHT rate, giving an effective IHT rate of 20% on that excess.
Does the £1m cap apply per person or per couple?
The £1 million cap applies to each individual's estate. A married couple or civil partnership can each have £1 million of qualifying property receiving full 100% relief. Assets passing between spouses are exempt from IHT in any case (the spousal exemption is unlimited). On the second death, the combined estate will face the £1 million cap applying to the surviving spouse's estate.
How does the APR/BPR reform interact with the Residence Nil Rate Band?
The Residence Nil Rate Band (RNRB) of £175,000 per person (£350,000 for a couple) still applies separately from APR/BPR. APR/BPR qualifying property does not reduce the RNRB entitlement. However, the RNRB starts to taper once the net estate exceeds £2 million -- and under the new rules, estates large enough to be affected by the cap may be large enough to trigger RNRB tapering.
What counts as qualifying agricultural property for APR after April 2026?
Qualifying agricultural property includes farmland, farm buildings, and a farmhouse that is of a character appropriate to the farm and occupied for agricultural purposes. The property must have been owned and occupied for agriculture for at least two years (owner-occupied) or owned for seven years if let to a tenant. The reform did not change what qualifies -- only the amount of relief available above the £1 million combined cap.
Can AIM shares still qualify for Business Property Relief after April 2026?
Yes. Shares listed on AIM (Alternative Investment Market) that have been held for at least two years and represent an interest in a qualifying trading business still attract BPR at 100%. However, from April 2026 they count toward the £1 million combined APR/BPR cap. Any AIM portfolio value above the cap (combined with other qualifying assets) will receive only 50% relief, meaning an effective IHT rate of 20% on the excess. The two-year holding requirement remains unchanged.
What is the effective IHT rate on farm assets above the £1 million cap?
The effective IHT rate on agricultural or business property above the £1 million combined cap is 20%. This is because 50% relief applies to the excess -- so only half the excess value is included in the chargeable estate. That included half is then taxed at the standard IHT rate of 40%, giving 50% x 40% = 20% on the value above the cap. This assumes the nil rate band (£325,000) has already been used against non-qualifying assets.
Can I make lifetime gifts of farmland to avoid the new APR cap?
Yes, gifts of farmland or business property made more than seven years before death are Potentially Exempt Transfers and fall entirely outside the estate. If you survive seven years, no IHT arises regardless of the cap. Gifts within three to seven years benefit from taper relief on the IHT charge. APR or BPR may still apply to reduce the chargeable value of a gift made within seven years, subject to the donee continuing qualifying use. Early planning well before death is key.
Does the £1 million APR/BPR cap include the nil rate band?
No. The £1 million APR/BPR cap and the nil rate band are entirely separate reliefs. The nil rate band (£325,000 in 2026/27) reduces the chargeable estate after APR and BPR have been applied. An individual can therefore shelter up to £1 million of qualifying farm or business assets through the cap, plus a further £325,000 through the nil rate band (and up to £175,000 via the Residence Nil Rate Band if a home passes to direct descendants), before any IHT becomes payable.
Will the farmhouse qualify for APR under the new rules?
A farmhouse can qualify for APR if it is of a character appropriate to the farm and occupied for the purposes of agriculture. HMRC applies a facts-and-circumstances test: the house must be the functional hub of a working farm, not simply a residence on agricultural land. Retired farmers or those who have let the land but retained the house often find the farmhouse fails the test. The April 2026 reform did not change these conditions; farmhouses that qualified before continue to qualify, subject to the new £1 million cap.
How does instalment relief work for IHT on farmland from April 2026?
Where IHT is payable on agricultural land or business property, the estate can elect to pay in ten equal annual instalments rather than as a lump sum. Interest accrues on the unpaid balance but instalment relief eases the immediate liquidity burden. Under the 2026 reforms, the IHT now payable on farm assets above the £1 million cap (at the 20% effective rate) can still be paid by instalments. This means a family inheriting a large farm with a £280,000 IHT bill could spread payments over ten years while continuing to farm the land.
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