UK raises inheritance tax relief threshold for farmers and businesses after backlash
As of December 23, 2025, the UK government raised the inheritance tax relief threshold for farmers and business owners, easing a reform that has drawn sustained backlash. From April 6, 2026, full (100%) relief will apply to the first £2.5 million of qualifying agricultural and business property in an estate, up from the £1 million level previously planned.
The shift is not a repeal. It is a redesign meant to protect most working farms and privately owned trading businesses, while still ending unlimited relief for the biggest estates.
This piece explains what changed, how the threshold works in plain terms, who still pays more, and why the real fight is about liquidity rather than wealth on paper.
The story turns on whether the government can tighten inheritance tax reliefs without forcing viable farms and family firms into sell-offs.
Key Points
The threshold for 100% inheritance tax relief on agricultural and business property will rise to £2.5 million per individual from April 6, 2026.
The allowance is combined across Agricultural Property Relief and Business Property Relief, so farm and business assets draw down the same £2.5 million pot.
A value above the threshold is expected to receive 50% relief, creating an effective inheritance tax rate of up to 20% for qualifying assets above the allowance.
The unused £2.5 million allowance will be transferable between spouses or civil partners, so couples can potentially shield up to £5 million of qualifying assets at 100% relief, before other inheritance tax allowances.
The government says the number of agricultural-relief estates affected in 2026–27 will roughly halve, and most estates that claim agricultural relief are forecast to pay no more inheritance tax under the reform.
The change will be added to the Finance Bill in January, ahead of the April 2026 start date.
Background on the threshold for inheritance tax relief
Inheritance tax applies to the estate of someone who has died. The headline rate is 40% above the basic tax-free allowance, but exemptions and reliefs can reduce that sharply.
Agricultural Property Relief and Business Property Relief can reduce the taxable value of qualifying farmland and business assets, often at a 100% rate. Until now, there has been no overall cap on the value covered. The government announced in late 2024 that, from April 2026, 100% relief would be limited to an allowance, with only partial relief beyond it. After protests and political pressure, the planned 100% relief cap has now been lifted to £2.5 million per individual.
Analysis
Political and Geopolitical Dimensions
This is a politics-of-place story. The government wants to raise revenue and curb perceived avoidance without being seen as punishing rural Britain. Raising the threshold is a signal that the backlash landed, but it also raises an awkward question: if the original design risked hitting ordinary farms, why was it framed as well targeted in the first place?
Food security sits behind the rhetoric. Even if the tax does not change prices next week, politics treats domestic production as strategic. Ministers do not want a headline in 2026 that says families are selling productive land to pay a tax bill.
Economic and Market Impact
The practical issue that arises during succession is the lack of liquidity. Estates can be land-rich and cash-thin, and a tax bill due after death can force economically damaging choices: selling land, selling the company, or taking on debt on poor terms.
By lifting the inheritance tax relief threshold to £2.5 million, the government reduces both the number of estates exposed and the size of the bill for those still above the line. Qualifying assets above the allowance are expected to receive 50% relief, so the effective rate can be up to 20% rather than 40%. The tax can also be paid in equal annual installments over 10 years without interest, which turns a one-off shock into a cash-flow problem that can sometimes be managed.
Social and Cultural Fallout
Farm succession is not only finance. It is identity, continuity, and status in rural communities. That is why the backlash has been emotionally charged and highly visible.
The higher threshold may reassure some families, but it can also split opinion. Smaller farms may feel safer, while larger family-run operations may argue the policy still treats them like large estates. Meanwhile, non-farming business owners—manufacturers, wholesalers, family retailers—may ask why their succession planning is being pulled into a farm-tax debate when their realities can be completely unique.
What Most Coverage Misses
The threshold is not a pure farm-value line. It is a combined allowance across agricultural and business reliefs. A diversified family operation—land, contracting, a farm shop, and a separate trading company—can run down the 100% relief pot faster than headlines suggest.
The second overlooked factor is administration. Even estates that owe no additional tax may face more valuation and paperwork, because they must prove eligibility and calculate how much of the allowance is used. That matters during bereavement, and it can change behavior well before April 2026.
Why This Matters
In the short term, the new threshold for inheritance tax relief is a pressure valve. It strengthens the government’s case that most ordinary farms and many family businesses will not face higher bills when the reforms begin.
In the longer term, it still reshapes succession planning for estates near or above the threshold. The key question is rarely ideological. It is whether the business can generate enough cash to handle a decade of payments without breaking the operating model.
The next milestones are legislative and time-bound: an amendment to the Finance Bill in January, and the rules scheduled to apply from April 6, 2026.
Real-World Impact
A dairy farm in Devon is valued at £3.5 million, mostly in land and buildings, with modest annual profits. Under a £1 million full-relief cap, the exposed value could translate into a large liability even at a reduced effective rate. Under a £2.5 million cap, the exposure is smaller, making refinancing and staged payments more realistic than selling acreage.
A family-owned wholesaler in the North West is valued at £4 million and depends on working capital to keep stock moving. A higher threshold reduces the risk that heirs must sell shares to an outside buyer purely to fund inheritance tax at the point of transfer.
A large landholding with diversified assets still faces the reform’s bite above the threshold. For those estates, the question is not whether tax is due, but how early they restructure to avoid forced decisions in 2026 and beyond.
What’s Next?
The number is higher, but the argument is not over. The next test is whether the amended Finance Bill passes cleanly in January or attracts further concessions.
After that, the signal will be behavior. If advisers and lenders see a surge in early transfers, refinancing, and restructuring ahead of April 2026, families still see the policy as a live threat. If activity stays muted and protests fade, ministers will claim they have found a workable line between fairness and continuity.
