A change in inheritance tax policy has allayed fears that family farms will be sold to meet the tax bill, after the government raised the tax-free threshold for agricultural assets to £2.5 million and allowed married couples to receive benefits worth up to £5 million together.
The changes follow widespread concern across the agricultural sector after plans set out in the Autumn Budget 2024 threaten to significantly reduce inheritance tax relief for farmland and business assets.
Under the original proposals, Agricultural Property Relief (APR) and Business Property Relief (BPR) would have been reduced beyond the £1 million threshold, exposing many family farms to an effective inheritance tax rate of 20%.
In the days leading up to Christmas, the government confirmed that the tax-free threshold would rise to £2.5m, with an effective tax rate of 20% only applied to assets above that level.
For married couples and civil partners, the revised rules mean they can transfer unused allowances, allowing them to transfer up to £5m of agricultural and business assets tax-free. Industry leaders say this could reduce inheritance tax liability by up to £600,000 for some households.
APR reduces the amount of inheritance tax payable when inheriting farmland after death, allowing farmers to maintain family ownership and continue producing food. The agricultural industry has long considered this remedy essential to the survival of family businesses.
In October 2024, the government announced changes to inheritance tax, with annual interest rates and business property relief capped at 50% on amounts over £1 million, with warnings that many farmers would be forced to sell their land to pay the tax.
The NFU, Country Land and Business Association (CLA) and other industry groups warned the proposals risked dismantling viable farming businesses and undermining food production.
In addition to the increased thresholds, we have also identified further changes that will impact couples and partners. Previously, unused APR and Business Property Relief Allowances could not be transferred between spouses, potentially limiting the amount that could be transferred to the next generation.
This position changed in the November 2025 Budget, allowing unused allowances to be transferred between spouses. This means that agricultural assets can be left to the surviving partner without using any allowances, and both partners’ allowances can be combined when the assets are eventually passed on to the children.
If the first death occurs before 6 April 2026, the full benefit will be transferred, a move aimed at simplifying the rules and making them fairer for widows and widowers.
The NFU said the new measures would significantly reduce the impact of inheritance tax on family farms, although it cautioned that the issue was not completely resolved. The union said large estates and landlords would still face a higher tax burden than under the previous system.
APR has historically encouraged investment in farmland by ensuring it remains actively farmed, often renting it out to young farmers looking to establish their businesses.
The increase in allowances will also benefit other family businesses, including non-farm businesses, but the NFU warns that the continuation of the 20% effective tax rate on sales above £2.5m could discourage investment in farmland.
Although the union hailed the concessions as an important step forward for family farms, it warned that they could reduce land available for farming and increase pressure on food production.
