Inheritance Tax Relief Changes Boost £2.5 Million Threshold for Farmers and Businesses

Inheritance Tax (IHT) can place a heavy burden on families passing down farms and businesses. Recognizing this, the government has announced a significant increase in the thresholds for Agricultural Property Relief (APR) and Business Property Relief (BPR). These changes aim to protect more family farms and businesses from IHT, allowing them to thrive across generations without the threat of excessive taxation.

Government raises inheritance tax relief thresholds to support family farms and rural businesses

What the New Thresholds Mean

Previously, the APR and BPR thresholds stood at £1 million per individual. The government will raise this to £2.5 million, effective from 6 April, as part of the upcoming Finance Bill. For married couples or civil partners, this means they can now pass on up to £5 million in qualifying agricultural or business assets before any IHT is due.

This change is a direct response to concerns raised by farmers and business owners who feared that the previous limits could force the sale of land or businesses to cover tax bills. By increasing the threshold, the government aims to:

• Protect family farms and rural businesses from forced sales

• Encourage long-term stewardship of agricultural land

• Support rural communities by keeping businesses intact

• Maintain fairness by ensuring the most valuable estates still contribute appropriately

  
  

Why This Matters to Farmers and Business Owners

Farms and rural businesses often have significant value tied up in land and equipment, but limited cash flow. When the owner passes away, the estate may face a large IHT bill. Without relief, heirs might need to sell parts of the farm or business to pay the tax, breaking up operations that have been in families for generations.

The increased thresholds mean:

• More estates qualify for relief, reducing the risk of forced sales

• Families can plan succession with greater confidence

• Businesses can continue operating without disruption

• Rural economies benefit from stability and continuity

  
  

For example, a farming couple with an estate valued at £4.5 million in qualifying assets will now pay no IHT, whereas under the old rules, they would have faced a tax bill on £2.5 million of that value.

How Agricultural Property Relief and Business Property Relief Work

Both APR and BPR reduce the value of qualifying assets for IHT purposes. APR applies to agricultural land and buildings, while BPR covers trading businesses and certain shares.

Key points include:

• Relief can be up to 100% of the value of qualifying assets

• Assets must be owned for at least two years before death to qualify

• The relief applies to the value of the property, not the entire estate

• The new thresholds mean relief applies up to £2.5 million per individual

  
  

This means a farmer or business owner with qualifying assets below the threshold will not pay IHT on those assets, preserving wealth within the family.

Government’s Response to Farming Community Concerns

The government listened carefully to feedback from farmers and rural businesses who expressed worries about the previous £1 million limit. Environment Secretary Emma Reynolds emphasized the importance of farming to food security and environmental stewardship.

She stated that increasing the threshold supports ordinary family farms and trading businesses, which form the backbone of rural communities. At the same time, the government remains committed to ensuring that very large estates contribute fairly to public finances.

This balanced approach aims to:

• Protect smaller and medium-sized farms and businesses

• Avoid unlimited relief for very large estates

• Encourage sustainable farming and business practices

  
  

Practical Steps for Farmers and Business Owners

With the new thresholds coming into effect soon, it is important for farm and business owners to review their estate plans. Here are some practical steps to consider:

• Assess the value of qualifying assets to understand potential IHT exposure

• Consult with a tax advisor or estate planner to update wills and succession plans

• Consider transferring assets during lifetime to take advantage of reliefs

• Keep detailed records of asset ownership and use to support relief claims

• Plan for long-term business continuity with family members or partners

  
  

Taking these steps can help families maximize the benefits of the increased thresholds and avoid unexpected tax liabilities.

Impact on Rural Communities and Food Security

By protecting more farms and businesses from IHT, the government supports the stability of rural communities. Farms are not only economic units but also custodians of the countryside and contributors to food production.

The relief changes help ensure:

• Continuity of food production and supply chains

• Preservation of rural jobs and skills

• Maintenance of environmental stewardship on farmland

• Strengthening of local economies dependent on agriculture and related businesses

  
  

This policy shift aligns with broader goals of sustainable agriculture and rural development.