The government has announced that it will relax the Inheritance Tax rules that were due to come into place on 6 April 2026.
This will increase the threshold for inherited farmland from £1 million to £2.5 million. As well as this, any unused part of the allowance can now be transferred between spouses.
The initial announcement in October 2024 was met with widespread concern. Since then, criticism and demonstrations from farmers, campaigners and MPs have caused the government to rethink its revisions, recognising the importance of farms to local communities and the wider economy.
What were the initial proposed changes?
As outlined in Autumn Budget 2024…
Relief at the rate of 100% would only be available for the first £1 million of combined agricultural and business property (not applicable to AIM shares).
Once the £1 million allowance had been exceeded, the maximum rate of relief would be 50%. Therefore, the effective rate of tax would be 20% on Agricultural and Business Property Relief qualifying property, in excess of the £1 million allowance, rather than at the current rate of Inheritance Tax of 40%.
Any unused part of the £1 million allowance would not have been transferable between spouses.
These measures have since been altered, as follows…
What are the new rules?
The level of the threshold for 100% Agricultural and Business Property Relief will be increased from £1 million to £2.5 million, with 50% relief (20% effective rate of tax) continuing to apply to qualifying assets above that level.
Spouses or civil partners can now pass on any unused allowance, meaning a surviving partner’s threshold could be a maximum of £5 million before paying Inheritance Tax.
Raising the threshold will significantly reduce the number of farms and businesses that would have been facing higher under the previous proposed changes. The latest measures should halve the relevant estates affected, with only the largest estates falling within their remit.
Need some guidance?
If you’re concerned about how the changes outlined in this article might affect you, please contact us and a member of our team will be happy to help.
