Last updated: 14 October 2026
How does the 2026 cut to farm Inheritance Tax relief affect farmers?
From 6 April 2026, 100% agricultural property relief (APR) and business property relief (BPR) apply only to the first £2.5 million of qualifying farm and business assets per person. Above that, relief is 50%, so the excess is taxed at an effective 20%. The original plan announced in October 2024 was a £1 million cap, but it was raised in December 2025. Each spouse or civil partner has an allowance and can pass on any unused part, so a farming couple can pass on £5 million of qualifying assets free of Inheritance Tax, plus their nil-rate bands.
What qualifies for agricultural relief
| Asset | APR? |
| Farmland and pasture used for agriculture | Yes, at agricultural value |
| Farm buildings and cottages occupied for farming | Yes |
| Farmhouse of a character appropriate to the land | Yes, if occupied for farming |
| Land let to a tenant farmer | Yes, if owned for 7 years |
| Development value above agricultural value | No APR; possibly BPR if a farming business |
| Machinery, livestock and goodwill | No APR; BPR if part of a trading farm business |
| Land in an environmental agreement | Yes, from 6 April 2025 |
Ownership and occupation tests
To qualify, you must have occupied the land for farming for 2 years before death or the gift, or owned it for 7 years with it farmed by someone else, such as a tenant. Tests apply separately to each asset.
Example
A farming couple own farmland, buildings and machinery worth £6 million, held equally. Each owns £3 million of qualifying assets. On the first death, everything passes to the survivor under the spouse exemption, so no IHT is due and the full £2.5 million allowance transfers. On the survivor’s death, they have £5 million of allowances against £6 million of assets. The remaining £1 million gets 50% relief, so £500,000 is chargeable. Two nil-rate bands of £325,000, £650,000 in total, cover that £500,000, so no IHT is due. The residence nil-rate band would be lost on an estate this size, but here it isn’t needed.
Farming partnerships and companies
If the farm is run through a partnership or company, the relief depends on what each partner or shareholder owns and how the assets are used. Partnership agreements should make clear who owns the land, as land owned personally but used by the partnership qualifies at only 50% for BPR, though it can still get 100% APR.
Paying any tax
IHT on agricultural and business property can be paid in 10 equal yearly instalments, interest-free. This gives families time to pay from farm income rather than selling land.
Planning steps for farmers
- Get a formal valuation of land, buildings and machinery
- Check how the farmhouse is used and owned
- Review wills, partnership agreements and any trusts
- Consider lifetime gifts to the next generation and the 7-year rule
- Check Capital Gains Tax on any gift, using holdover relief where available
Frequently asked questions
Do trusts get an allowance?
Yes, a separate £2.5 million, with special rules.
Does the allowance rise with inflation?
Check the latest rules; the government has said it will stay at £2.5 million for the next few years.
What about lifetime gifts made before 2026?
Gifts from 30 October 2024 may count if you die within 7 years.
Is the farmhouse always covered?
Not if it’s larger than the farm justifies.
Related: agricultural relief on Inheritance Tax, the climbdown on family firm relief and IHT on a deceased person’s gift.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with Inheritance Tax for farmers. See our small business accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
