Handing on a family business or a farm is rarely just a financial transaction. It is about protecting something built over years, often generations, while ensuring the people who depend on it are secure and that the tax bill does not force a sale.
This article focuses on the position in England and Wales. While inheritance tax is a UK-wide tax and the reliefs discussed below generally apply across the UK, the rules relating to wills, trusts, probate and partnerships are governed by the laws of each jurisdiction.
What changed, and why the headlines were so alarming
For many years, qualifying farms and family businesses could be passed on free of inheritance tax thanks to two reliefs: Agricultural Property Relief (APR) and Business Property Relief (BPR). At 100% relief, the value passing on was not capped.
That position changed at the Autumn Budget in 2024, when the government announced plans to limit the scope of APR and BPR. The original proposal introduced a combined £1 million allowance, which was not transferable between spouses or civil partners.
The announcement sparked a significant backlash, particularly from the farming community where wealth is often tied up in land and business assets which cannot be sold easily.
The various lobbying worked, at least in part. In late 2025, the government confirmed that the allowance would now be transferable between spouses and civil partners, and just before Christmas, raised it from £1 million to £2.5 million per individual.
Those revised rules are now law. They were enacted in the Finance Act 2026 and took effect on 6 April 2026. If you have seen older coverage referring to a £1 million cap, that figure is out of date. The current position of £2.5m is more generous, but it still marks a real change from the unlimited relief that went before.
The rules as they now stand
In short, each person now has a combined allowance of £2.5 million for qualifying property and assets APR and BPR, with 100% relief. Anything above that figure attracts relief at 50%, meaning the excess is taxed at an effective rate of 20%, (half the standard 40% inheritance tax rate). You can read the government’s summary in its guidance on the changes.
The allowance is transferable so that any unused portion can pass to a surviving spouse or civil partner (not for unmarried spouses). Spouses can therefore pass Inheritance Tax free up to £5 million of qualifying assets at 100% relief, in addition to the usual nil-rate band of £325,000 per person. Therefore, for Spouses the total tax free allowance can total up to £5.65m.
Although £2.5 million sounds substantial, it does not necessarily represent a large farming operation. Many working farms exceed that figure once the value of farmland, buildings and the farmhouse are taken into account. The result is that some families who previously expected to pay little or no inheritance tax may now need to consider how any future liability will be funded.
The traps that catch people out
The reliefs come with conditions and timing rules that are worth understanding before making any decisions.
Agricultural Property Relief covers only the agricultural value of land, not any additional “development” or “hope” value attached to it. For land near towns or with building potential, that distinction can be significant. To qualify, the land must generally have been occupied for agricultural purposes by the owner for at least two years or have been owned for at least seven years if someone else farms it. These conditions remain unchanged by the reforms.
You can find the basics on APR and BPR on GOV.UK.
The seven-year period appears in three different ways, and it helps to keep them apart. First, a gift made in your lifetime normally falls out of account for inheritance tax if you survive seven years but counts if you do not.
Second, the new allowance refreshes on a rolling seven-year basis for lifetime gifts, much like the nil-rate band.
Third, there is a catch for gifts already made: a transfer of qualifying property on or after 30 October 2024 will be reassessed under the new rules if the person making it dies on or after 6 April 2026 and within seven years of the gift.
APR/BPR and diversification
It is also important to understand the distinction between APR and BPR. APR applies only to the agricultural value of qualifying agricultural property.
Many modern farming businesses have diversified income streams, such as holiday accommodation, farm shops, wedding venues, renewable energy projects or commercial lets. Those activities may fall outside APR altogether but may still qualify for BPR if the business satisfies the relevant conditions. The position is highly fact-specific and should be reviewed carefully as part of any succession planning exercise.
Diversification can therefore create both opportunities and risks. For example, land used for a solar farm or other renewable energy project may not qualify for APR because it is no longer being used for agriculture. However, depending on how the arrangement is structured and who operates the business, BPR may still be available. Equally, where land attracts a premium because of its alternative use potential, that element of value may fall outside APR and increase the exposure to inheritance tax. Understanding which relief applies to each asset is often just as important as considering the overall value of the estate.
Giving assets away in your lifetime
Passing assets to the next generation early can be sensible, both for tax reasons and to gradually bring younger family members into the business. But it needs care.
Beyond the inheritance tax timing noted above, a lifetime gift can trigger a capital gains tax charge on any increase in the asset’s value, because you are treated as disposing of it.
Relief is often available to defer that charge where business or agricultural assets are involved, but it is not automatic. By contrast, assets passing on death are generally uplifted for capital gains tax, wiping out the gain to date. The instinct to give everything away early can therefore swap an inheritance tax saving for a capital gains tax problem, and the right balance depends entirely on the family’s circumstances.
There is also the simple matter of control. Once an asset is given away, it is gone, and the timing of any handover should reflect that as much as the tax position.
Furthermore, care must be taken to avoid the gift being treated as a gift with reservation of benefit. In simple terms, if parents transfer farmland to their children but continue to occupy, use or farm it as before, the land may still be treated as part of the parents’ estate for inheritance tax purposes. To avoid this outcome, the donor must genuinely give up the benefit of the asset or, where appropriate, pay a full market rent for its continued use.
Getting the structure right
A workable succession plan is about more than reliefs.
Wills should be reviewed as a priority. A will drafted before these changes may now produce a worse outcome than intended. A common arrangement leaves all relevant assets to children and everything else to the surviving spouse. Under the new cap, that can waste part of the allowance or create an unexpected tax charge, so the wording is worth checking now rather than later.
The ownership of the business should be properly documented. For a partnership, an up-to-date partnership agreement makes clear what happens to a partner’s share on death or retirement.
An important part of having partnership agreements and accounts up to date include having up to date land/farm valuations. The ‘book value’ of the farm may not reflect the true value and therefore it is difficult to understand the true value of the land/farm.
Therefore, it is important to have the land/farm regularly valued.
For a company, the equivalent is a shareholders’ agreement, often supported by cross-option arrangements so that surviving owners can buy out a deceased owner’s family. It is also sensible to separate the question of who owns the assets from who runs the business day-to-day, so that management can pass to successors at a different pace from ownership.
Trusts can still play a useful role, though the reforms have tightened the way the allowance applies to them. Advice is essential before settling assets.
Finally, plan for both incapacity and death. A lasting power of attorney ensures someone can act if an owner becomes unable to make decisions, which is especially important where a business needs to keep running. Depending on the structure of the farm without these in place it may be that no payment out could be made from the farm account and therefore the farm account is essentially frozen.
Paying the bill
For asset-rich, cash-poor farms and businesses, the real difficulty is often finding the funds to pay inheritance tax without selling the very asset being passed on.
Two measures help:
- The option to pay inheritance tax in ten equal annual instalments, interest-free, has been applied property qualifying for APR and BPR, easing the immediate pressure. However, any other assets paid my instalments (such as additional properties) would be charged interest under the standard instalment rules
- Life insurance, when written in trust allows the proceeds fall to outside of the taxable estate, can be a way to meet the liability.
A few practical steps
Start early. Good succession planning takes time and leaving it late narrows the options. Talk openly as a family, including those who will not be taking over the business, so expectations are clear. Review the plan regularly, because both the law and family circumstances change.
These rules are now settled, but they are also new, and the right approach depends heavily on your particular estate. Before making any gifts, restructuring ownership, or rewriting your will, get in touch with your solicitor, who can work alongside your accountant to put a plan in place that suits your family and your business.
