31st December 2025

Major Changes to Farm Inheritance Tax Relief – December 2025 Update

The UK Government has announced significant revisions to its planned inheritance tax reforms for farming families and rural businesses. Following extensive industry backlash, public demonstrations, and cross‑party pressure, the Government has raised the inheritance tax relief thresholds for agricultural and business property. These changes materially reduce the number of farms facing higher inheritance tax (IHT) liabilities when passing assets to the next generation.

This update is highly relevant to anyone holding farmland, agricultural property, or rural business assets.

  1. Key Changes at a Glance

✔ Increased Relief Thresholds

Individual allowance increased from £1 million to £2.5 million for qualifying Agricultural Property Relief (APR) and Business Property Relief (BPR).

Married couples/civil partners can now pass on up to £5 million of qualifying agricultural/business assets tax‑free, through a combination of individual allowances and spousal transferability.

✔ Relief Structure

  • 100% relief on qualifying assets up to £2.5 million per individual.
  • 50% relief applied to the value above that threshold.
  • Effective tax rate on excess agricultural value remains significantly lower than the standard 40% IHT.

✔ Implementation Timeline

Changes will apply from April 2026, aligning with broader IHT reform packages.

  1. Why the Government Changed Course

The reforms originally proposed in 2024 would have brought thousands of family farms within the IHT net for the first time, with a 20% tax on agricultural assets exceeding £1 million. This triggered:

  • Nationwide tractor‑led protests
  • Strong opposition from the NFU and rural MPs
  • Fears over farm viability, succession, and forced land sales

In response, ministers acknowledged the disproportionate impact on family‑run farms and rural economies, leading to the present climbdown.

  1. What This Means for Family Farms

✔ Fewer families will face punitive IHT bills

The jump to a £2.5m threshold significantly reduces the number of family farms caught by the reforms. Far fewer of the projected additional affected estates will now see the sorts of increase in tax liability than was previously the case, and in some instances there will be no inheritance tax payable.

✔ Succession Planning Becomes More Manageable

Families now have greater certainty when planning intergenerational transfers. The spousal transferability of relief means many farming businesses can structure their estates to fully utilise the combined £5m threshold.

✔ Large or asset‑rich farms may still be exposed

Holdings above £2.5m per individual may remain within the 50% charge zone. Asset‑rich but profit‑poor farms risk liquidity issues when passing on land and buildings.

  1. Practical Steps for Clients
  1. Review Current Wills and Partnership Agreements

Structures drafted under the old regime may no longer be optimal.

  1. Confirm Ownership Arrangements

Relief applies differently to owned, leased, or partnership‑held land. Clarifying beneficial ownership is essential.

  1. Consider Lifetime Planning

Gifts into trust, restructuring of business interests, or land transfers may now achieve better tax outcomes given the higher allowances.

  1. Update Succession Plans

Families with larger estates should still model expected IHT exposure beyond £2.5m/£5m thresholds and consider options.  Some of the old chestnuts will come back into sharp focus such as assets not used for farming/business beyond the tolerances established by HMRC v Brander, and the ‘character applicable’ test for farmhouses.

  1. Monitor Further Legislative Detail

As seemingly always is now the case, the devil will be in the detail, including interpretation of APR/BPR eligibility and transitional rules.

  1. How We Can Assist

We recommend booking a review of your estate planning arrangements. Our team can:

  • Model your projected IHT exposure under the new rules
  • Identify optimisation opportunities
  • Update wills, partnership agreements, and trust documents
  • Advise on likely potential APR/BPR eligibility
  • Coordinate with accountants on capital gains and cash‑flow implications

For more information, please contact: Edward Walter on 01892 502 320 ewalter@bussmurton.co.uk or Kirsty Hendon-Naidoo on 01892 502 397 khenton-naidoo@bussmurton.co.uk

Edward Walter

Edward Walter
Partner