What are the changes to agricultural property relief?

Reforms announced at Autumn Budget 2024 will help raise money to fix the public finances while protecting small family farms from unfairly high inheritance tax.

Budget 2025 update

The government has announced that any unused £1 million allowance for agricultural property relief and business property relief will be transferable between spouses and civil partners, to bring it in line with the treatment of the nil-rate band and residence nil-rate band. This makes the inheritance tax rules for those with agricultural and business assets less complex and fairer. This change will apply to widows and widowers, including where the first death is many years before 6 April 2026, who will now be able to benefit from double the allowance than they would have prior to the Budget 2025 changes.

This means a surviving spouse or civil partner can benefit from the full 100% relief from inheritance tax for up to £2 million of combined agricultural and business assets depending on their circumstances. It also reduces the complexity and planning for spouses and civil partners seeking to make best use of the allowance between them - see example 1 in the box below.

Following Budget 2025, up to 375 of the wealthiest estates claiming agricultural property relief, including those that also claim for business property relief, are now expected to pay more inheritance tax in 2026 to 2027, compared to the position before Autumn Budget 2024's policy changes were announced.

As a result of the allowance being transferable, 190 estates claiming agricultural property relief, including those also claiming business property relief, will benefit in 2026 to 2027 compared to the policy announced at Autumn Budget 2024: 60 estates will no longer pay any increased tax and 130 estates will pay less additional tax than they would have done.

Almost three-quarters of estates claiming agricultural property relief, including those that also claim for business property relief, are not expected to pay more inheritance tax, based on the latest available data.

Example 1: farm owned by a surviving spouse or civil partner

A surviving spouse or civil partner who owns a farm can now benefit from an additional £1 million allowance, relative to the position before the changes announced at Budget 2025. This is in addition to any unused nil-rate bands, which are already transferable.

It does not matter if the first spouse to die owned the farm or other agricultural assets. Their £1 million allowance can be transferred to their spouse on death if unused, leaving the surviving spouse with £2 million allowance to use against any agricultural assets in their estate.

This leaves the surviving spouse with an allowance for agricultural property inheritance of up to £2 million (£1 million + £1 million) and a nil-rate band of up to £650,000 (£325,000 + £325,000).

Person 1: All assets are transferred to spouse/civil partner benefitting spouse relief. Unused £325,000 + £1 million allowances are transferred to Person 2 on death

Person 2: £650,000 (made up of £325,000 + £325,000) + £2 million (made up of £1 million + £1 million)

Total passed on tax free: £2.65 million

Note: As with all estates, the residence nil rate band is tapered away for estates worth over £2 million.

Below is a note published following Budget 2024, which has been updated to include reference to the changes announced at Budget 2025:

What are the changes to agricultural property relief?

At Autumn Budget 2024, the Chancellor announced that agricultural property relief and business property relief will be reformed from 6 April 2026.

The reforms help raise money to fix the public finances while protecting small family farms from unfairly high inheritance tax.

At Budget 2025, the Chancellor announced adjustments to the reforms to make the rules fairer for widows and widowers, and less complex.

The government is committed to supporting farmers and rural communities, including helping families to pass their land on to the next generation.

What is agricultural property relief?

Agricultural property relief is a type of inheritance tax relief. It reduces the amount of tax that farmers and landowners must pay when farmland is passed to the next generation.

Business property relief is similar, but for business assets that are part of the estate.

What is changing from 6 April 2026?

From 6 April 2026, the full 100% relief from inheritance tax will be restricted to the first £1 million of combined agricultural and business property. 

Above this £1 million allowance, impacted individuals will access 50% relief from inheritance tax on qualifying assets and will pay inheritance tax at a reduced effective rate of up to 20%, rather than the standard 40%. This tax can be paid in equal instalments over 10 years interest free, rather than immediately, as with other types of inheritance tax.

This is on top of all the other spousal exemptions and nil-rate bands that people can access for inheritance tax too. All individual estates have £325,000 tax-free threshold for inheritance tax (the nil-rate band). They may also qualify for a further residence nil-rate band of up to £175,000, if they are passing a main residence to a direct descendent.

This means that two people with farmland, depending on their circumstances, can pass on up to £3 million without paying any inheritance tax

Budget 2025 announced that, in addition to the reforms announced last year, any unused £1 million allowance on the death of a spouse or civil partner will now be transferable to a surviving spouse or civil partner. This makes it like the nil-rate band and residence nil-rate band.

A surviving spouse or civil partner will now benefit from the full 100% relief from inheritance tax for up to £2 million of combined agricultural and business assets, double the maximum amount prior to the Budget 2025 announcement.

When combined with the nil-rate band, a surviving spouse or civil partner with farmland will now be able to pass on up to £2.65 million without paying any inheritance tax.

This is an assumption based on the £1 million allowance and nil-rate bands and does not take into consideration other specific circumstances that may affect the tax calculation. In some circumstances individuals will be able to pass on more inheritance-tax free, for example, if the estate contains relatively few assets that do not qualify for agricultural or business property relief, meaning the nil rate bands can apply to assets qualifying for the 50% rate of relief on agricultural or business property over the £1 million allowance.

Example 2: farm owned by two people

Two people who jointly own a farm will be able to pass on land and property valued up to £3 million to a child or grandchild tax free. That is made up of £1 million, where they combine their standard £500,000 tax-free allowances (£325,000 for nil-rate band + £175,000 for residence nil-rate band), and on top of that, an additional £1 million tax-free allowance each for agricultural property inheritance.

Person 1: £325,000 + £175,000 + £1 million

Person 2: £325,000 + £175,000 + £1 million

Total passed on to direct descendant tax free: £3 million

This would be £2.65 million if leaving to anyone else that is not a direct descendant as would no longer be able to access the additional residence nil rate band (£175,000 each). 

Person 1: £325,000 + £1 million

Person 2: £325,000 + £1 million

Total passed on to non-direct descendant tax free: £2.65 million

Example 3: farm owned by one person

One person who owns a farm will be able to pass on land and property valued up to £1.5 million tax free to a child or grandchild. That is made up of their standard £500,000 tax-free allowance (£325,000 nil-rate band + £175,000 residence nil-rate band), and an additional £1 million tax-free allowance for agricultural property inheritance.

Total passed on to direct descendant tax free: £1.5 million (£325,000 + £175,000 + £1 million)

This would be £1.325 million tax free if leaving to anyone else that is not a direct descendant as would no longer be able to access the residence nil-rate band.

Total passed on to non-direct descendant tax free: £1.325 million (£325,000 + £1 million)

More detail can be found in the summary of reforms to agricultural property relief and business property relief.

Why is the government reforming these reliefs?  

The government is better targeting these reliefs to make them fairer, protecting small family farms. 

Figures published at Autumn Budget 2024 show that the top 7% (the largest 117 claims) account for 40% of the total value of agricultural property relief. This costs the taxpayer £219 million. The top 2% of claims (37 claims) account for 22% of agricultural property relief, costing £119 million.

It is not fair for a very small number of claimants each year to claim such a significant amount of relief, when this money could better be used to fund our public services.

How does this impact other ways of passing on farmland?

Full exemption for transfers between spouses and civil partners continue to apply. This means that any agricultural and business assets left to a spouse or civil partner will be tax free. 

Any gifts to individuals more than seven years before death will continue to fall fully outside the scope of inheritance tax. The effective rate of tax paid on gifts within seven years of death tapers down from 3 years after the transfer depending on circumstances.

What other funding is available to farmers?

The government has allocated a record £11.8 billion to sustainable farming and food production over this Parliament. This includes the largest financial investment into nature-friendly farming ever and increases support for nature friendly farming through Environmental Land Management schemes from £800 million in 2023-24 to £2 billion a year by 2028-29.