Inheritance Tax Update: How the £1 Million Cap on APR and BPR Will Affect Farmers

Current Reliefs: No Limit in Place

Right now, there’s no cap on how much agricultural property relief (APR) and business property relief (BPR) can apply to qualifying land, buildings, and business assets. Both can offer 100% relief, which means estates with large amounts of farmland, farmhouses, and business property may currently pass down with little or no inheritance tax.

What’s Changing in April 2026

From 6 April 2026, a new limit will apply. The 100% relief rate will only cover the first £1 million of qualifying agricultural and business property. Any value above that will only qualify for 50% relief.

This shift could have a major effect on farmers and landowners looking to pass on farmhouses, buildings, and land, making it essential to review wills and succession plans.

The £1 Million Allowance Explained

The cap will work through a £1 million allowance given to each individual’s estate. But unlike the nil rate band or residence nil rate band, this allowance can’t be transferred to a surviving spouse or civil partner. If it’s unused, it’s lost.

Why Couples Need to Plan Carefully

For married couples and civil partners with combined qualifying assets above £1 million, simply leaving everything to the surviving spouse is no longer the most tax-efficient option.

• If left entirely to a spouse, the survivor’s estate will only have one £1 million allowance. Any excess would only get 50% relief.

• If instead, both spouses leave up to £1 million of assets directly to children or grandchildren, together they could shelter £2 million of qualifying assets at 100% relief.

Considering Lifetime Transfers

Another planning option is lifetime gifting. These transfers are usually treated as potentially exempt transfers (PETs), becoming tax-free if the donor survives seven years. If the donor dies earlier, inheritance tax may apply, though taper relief can reduce the liability after three years.

However, transitional rules apply:

• If a PET is made on or after 30 October 2024, and

• The donor dies on or after 6 April 2026 but within seven years,
  then the new £1 million cap will still apply. This means the full allowance may not be available for gifts made close to death.

What Farmers Should Do Next

These changes could significantly alter how agricultural and business property is passed on. Farmers should:

• Review their wills and estate planning strategies,

• Seek professional advice on how to structure transfers,

• Plan ahead early to make the most of allowances.

Partner note: www.gov.uk/government/publications/reforms-to-agricultural-property-relief-and-business-property-relief.

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