The 2026 changes to Agricultural and Business Property Relief: Everything you need to know

In the Labour Government’s inaugural Budget on 30 October 2024, major changes to Agricultural Property Relief (APR) and Business Property Relief (BPR) for inheritance tax (IHT) were announced. These reforms, set to take effect from 6 April 2026, have significant implications for landowners, farmers, and business owners, with further details expected following a consultation in early 2025.

This article outlines the proposed reforms, their potential impact, and key planning considerations.

Current relief framework: A snapshot

Agricultural Property Relief (APR)

APR provides relief for qualifying “agricultural property,” including farmland, certain farmhouses, and buildings used for farming purposes. Relief is available at 100% or 50%, depending on ownership and tenancy arrangements. Currently, APR applies to the agricultural value of land, significantly reducing the IHT burden.

Business Property Relief (BPR)

BPR applies to trading businesses or shares in such businesses, providing either 100% or 50% relief depending on the nature of the asset. For landowners, BPR can supplement APR by covering non-agricultural assets within a business, such as commercial properties and holiday lets, if the overall business is “mainly trading.”

Key budget announcements

The changes will reduce the scope of full relief for high-value estates. Here’s what we know:

1. Introduction of a £1 million allowance:
   • Formerly 100% relieved assets will now only receive full relief up to £1 million.
   • Above this threshold, these assets will be eligible for 50% relief.
   • This allowance applies across both APR and BPR, and it is not transferable between spouses.
2. Revised treatment for trusts:
   • Trusts created before 30 October 2024 will retain their own £1 million allowance.
   • Trusts created after this date by the same settlor will share a single £1 million allowance.
3. Anti-forestalling measures:
   • Gifts made on or after 30 October 2024 will be assessed under the new regime if the donor dies on or after 6 April 2026.
4. Impact on lifetime transfers:
   • Gifts during the donor’s lifetime may now offer better tax outcomes than holding assets until death, provided the donor survives seven years.

Practical implications

The reforms fundamentally alter IHT planning for agricultural and business assets. Here are some scenarios to consider:

• On death: Assets exceeding the £1 million allowance will attract a 20% effective IHT rate.
• Lifetime gifts: Outright gifts of APR/BPR assets during lifetime could fully avoid IHT if the donor survives seven years.
• Trusts: Establishing new trusts will incur a 10% IHT charge upfront (rising to over 11% if the settlor pays the tax), with an additional 10% charge if the donor dies within seven years.

Strategic considerations for farmers and business owners

1. Lifetime gifting: Younger owners should consider passing down assets during their lifetime to reduce IHT exposure. Term life assurance can help cover risks if the donor dies within seven years.
2. Reviewing wills: Couples should update their Wills to maximize the use of each £1 million allowance.
3. Maintaining trusts: Historic trusts may be advantageous as they retain their own allowances.
4. Succession planning: Families must revisit succession plans to account for the new tax dynamics, ensuring assets are passed on tax-efficiently while maintaining control.
5. Diversification decisions: While diversification remains important, reduced IHT benefits may temper the financial incentive to invest in trading activities or environmental schemes.

Broader impact

The reforms may also influence land values, with potential decreases if investor demand for IHT-relieved assets falls. Additionally, traditional strategies like Balfour structuring, which bundled agricultural and non-agricultural assets to maximize relief, will see diminished benefits.

Next steps and how Moore Barlow can help

Given the complexity of these changes, proactive planning is crucial. The consultation in 2025 may refine the rules, but the April 2026 deadline looms. At Moore Barlow, our team of experienced lawyers is ready to help you navigate these reforms, structure your assets effectively, and plan for a tax-efficient future.

Contact us today to discuss how these changes might affect your estate and how we can assist in preserving your legacy.