Agricultural and Business Property Relief Reform – Inheritance Tax : What action do I need to take?

The Government has, at long last, published draft legislation to implement the changes to Agricultural Relief (AR) and Business Property Relief (BR) for Inheritance Tax (IHT) taking effect from 6th April 2026.

A reminder of the changes to Agricultural Relief and Business Property Relief

Currently, 100% agricultural relief and business property relief  is unrestricted for qualifying agricultural or business interests. From 6 April 2026, this 100% rate will be capped at £1,000,000 (reduced by gifts in the last seven years before death but refreshing after seven years), with any qualifying assets above this figure receiving only 50% AR or BR, i.e. an effective rate of IHT of 20% over the £1,000,000 allowance and any available nil rate bands.

On the trust side, trusts will have a £1,000,000 allowance for the full relief with only 50% relief on the excess value in calculating any charges on any IHT event, including exit charges and ten-year charges. Transitional rules will apply for trusts that existed before 30th October 2024.

Impact on me, my family and farm or business?

If you do nothing, this is likely to have a huge inheritance tax impact on your estate in due course as your farm or business will no longer get up to 100% relief post 5th April next year. Fundamentally, you may wish to gift some or all of your farm or business now so that the value (which will otherwise only get 50% relief over the first £1,000,000) falls out of account for IHT purposes if you survive seven years.

You need to consider whether or not:

1. to make lifetime gifts now to the next generation (either outright or via a discretionary trust);
2. to review the ownership structure between spouses/civil partners and to update your Will; and
3. to review any existing trusts holding AR/BR assets.
   Lifetime gifting outright or setting up a discretionary trust?

An outright gift?

If the next generation are settled and ready to take on the entirety of your farm or business, an outright gift may be appropriate. This is simpler (but less flexible) than a gift into trust and will fall out of account for IHT purposes after seven years, regardless of whether you make the gift by or after 5th April next year.

If you own 100% of the farm or business, the gift may be relatively straightforward. Alternatively, if you have adult family members who can be transferred just a portion of your farm or business (e.g. by a transfer of shares or partnership interest), then this may be more complicated, because amendments to your partnership agreement or shareholder arrangements may be appropriate, especially if you want to retain control and do not intend any of the transferees to have controlling rights.

Or a gift by setting up a family trust and transferring the farm or business to the trust?

Your family circumstances may mean that setting up a discretionary trust for the family is more appropriate than an outright gift. For example, it may not be clear if your children are ready or want to be involved with the farm or business or you may have concerns about threats from divorce or bankruptcy. Trusts give you flexibility whilst you can retain effective control as trustees.

The IHT changes are particularly relevant for the creation of trusts in that previously you would have been able to put your farm or business interest into a lifetime discretionary trust with potentially 100% relief. However, post 5th April 2026, assuming the value is over £1,000,000, there will be immediate IHT on the unrelieved 50% at the time you create the trust. So the next few months will be the last opportunity to put your farm or business interest into a lifetime discretionary trust now with the unrestricted 100% AR/BR applying to the creation of the trust.

Whether you gift outright or into trust, if you don’t survive seven years (and die after 5th April 2026), the IHT is recalculated under the new rules, i.e. with only 50% relief (over the £1,000,000 allowance). We strongly recommend you take valuation advice and if appropriate take out term assurance to cover the IHT risk.

Reviewing the ownership structure between couples and updating your Will

The £1,000,000 allowance is not transferable. If the estate of the first spouse to die all passes to the surviving spouse, the £1,000,000 allowance of the first to die will have been wasted. You should also consider if both spouses have £1,000,000 worth of farming or business interest in the first place to claim this.

When should I do this?

We recommend that you:

• take advice on how the reforms will affect you specifically and obtain suitable valuations as soon as possible; and
• allow time, ideally by November 2025, for us to implement any planning in good time for 5th April 2026.

Next steps

Please speak to the Head of our Tax and Estate Planning department, William Hadley, or one of the country’s leading experts in IHT relief, Anthony Nixon, as well as other expert colleagues in the team if you have any queries regarding agricultural relief or business property relief in relation to inheritance tax.

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