Currently, there is no limit on the amount of qualifying agricultural and business property that can benefit from the 100% rates of agricultural property relief (APR) and business property relief (BPR). However, this is set to change from 6 April 2026. From that date, the 100% rate of relief will be capped at the first £1 million of qualifying agricultural and business property. Where the qualifying agricultural and business property in the estate exceeds £1 million, relief will be given at the rate of 50%.

This change will impact farmers passing on farmhouses, farm buildings and other agricultural property, and they may wish to revisit their wills as a result.

£1 million allowance

Effect is given to the cap on 100% APR and BPR by means of a £1 million allowance. Each individual’s estate has an allowance. However, if this allowance is not used in full it is lost. Unlike the nil rate band and the residence nil rate band, the unused portion cannot be used by the surviving spouse or civil partner’s estate.

Planning ahead

Where a married couple or civil partners have combined qualifying business and agricultural property in excess of £1 million, leaving everything to each other is no longer tax efficient. While the inter-spouse exemption will apply on the first death, the surviving spouse or civil partner’s estate will only have one £1 million allowance to play with. Consequently, agricultural and business property in excess of £1 million not otherwise sheltered or exempt will only benefit from 50% relief.

If, instead, each provides for £1 million of qualifying agricultural and business property to be left other than to the spouse or civil partner, for example, to the children or grandchildren, the combined estates will be able to benefit from 100% APR and BPR on qualifying agricultural and business assets of £2 million.

Consideration could also be given to making lifetime transfers. A lifetime transfer is a potentially exempt transfer (PET) and oronly comes into charge if the transferor does not survive seven years. If the transferor dies before the seventh anniversary of the gift, IHT will apply, although taper relief will reduce the amount payable if the transferor survives for at least tthree years.

Transitional rules bite where a lifetime transfer is made on or after 30 October 2024 and the transferor dies on or after 6 April 2026 and within seven years of making the gift. Where this is the case, the £1 million cap on 100% relief applies. As allowances and nil rate bands are applied in chronological order, where the PET comes into charge, this may mean that the full £1 million allowance is not available for gifts of qualifying agricultural and business property made on death.

Farmers are advised to take professional advice on what the changes will mean for them.