A policy shift on inheritance tax has eased fears that family farms would be sold off to meet tax bills, after the government raised the tax-free threshold for agricultural assets to £2.5 million and allowed married couples to combine allowances worth up to £5 million.
The changes follow widespread concern across the farming sector after plans set out in the autumn budget 2024 threatened to significantly reduce inheritance tax relief on farmland and business assets.
Under the original proposals, agricultural property relief (APR) and business property relief (BPR) would have been cut above a £1 million threshold, exposing many family farms to an effective inheritance tax rate of 20%.
The government confirmed in the days leading up to Christmas Day that the tax-free allowance will instead rise to £2.5 million, with the 20% effective rate applying only to assets above that level.
For married couples and civil partners, the revised rules mean unused allowances can be transferred, allowing up to £5 million of agricultural and business assets to be passed on tax-free. Industry leaders have said this could reduce inheritance tax bills by as much as £600,000 for some families.
APR reduces the amount of inheritance tax payable when farmland is passed on after death, helping farms remain in family ownership and continue producing food. The relief has long been seen by the farming industry as essential to the survival of family-run businesses.
In October 2024, the government announced changes to inheritance tax that would have limited APR and business property relief to 50% above £1m, triggering warnings that many farmers would be forced to sell land to pay tax bills.
The NFU and the Country Land and Business Association (CLA), among other industry organisations, warned that the proposals risked dismantling viable farm businesses and undermining food production.
Alongside the higher threshold, further changes affecting married couples and civil partners have also been confirmed. Previously, unused APR and business property relief allowances could not be transferred between spouses, potentially restricting how much could be passed on to the next generation.
That position was changed in the November 2025 budget, allowing unused allowances to transfer between spouses. This means agricultural assets can be left to a surviving partner without using the allowance, enabling both partners’ allowances to be combined when assets are eventually passed on to children.
Where the first death occurs before 6 April 2026, the full allowance will be assumed to transfer, a move intended to simplify the rules and make them fairer for widows and widowers.
The NFU said the revised measures would significantly reduce the impact of inheritance tax on family farms, although it warned that the issue had not been fully resolved. The union said larger estates and landowners would still face higher tax bills than under the previous system.
APR has historically encouraged investment in farmland by ensuring it remains actively farmed, often being rented out to younger farmers seeking to establish their businesses.
While the higher allowance will also benefit other family-run enterprises, including non-farming businesses, the NFU has warned that the continued 20% effective tax rate above £2.5 million could discourage investment in agricultural land.
The union has cautioned that this could reduce the amount of land available for farming and increase pressure on food production, despite welcoming the latest concessions as a significant step forward for family farms.
