New farm inheritance tax rules now in force as experts warn of challenges

New inheritance tax changes that came into force on 6 April are already set to increase pressure on farm succession, with accountants warning of “significant challenges” for some businesses.

The rules mean the first £2.5 million of combined agricultural and business property will continue to receive full relief, with 50% relief applied to assets above that level.

The threshold was raised in December 2025 from an original £1 million following industry backlash, but the reforms remain controversial across the farming sector.

For many family farms, land values alone can quickly exceed the £2.5 million threshold, even where farm incomes remain relatively modest.

Agricultural property relief has historically allowed most farms to be passed on without inheritance tax, making the new approach a significant shift for the sector.

The original proposals sparked protests across the UK, with farmers warning the changes could make it harder to pass farms on to their children.

Elsa Littlewood, private client partner at accountancy firm BDO, told The Guardian the changes were “a watershed moment for the farming and family business community”.

She said: “While there have been some important and welcome concessions made since these new rules were initially announced, the new policy is nevertheless a significant departure from the previous regime and will pose significant challenges for those businesses in scope.”

The changes are expected to place greater emphasis on early succession planning, with farmers likely to require more detailed financial and legal advice.

Ms Littlewood warned the rules could hit farms hardest where businesses are “asset-rich but cash-poor” — a common feature of the sector, where wealth is tied up in land and machinery rather than available cash.

This could leave some businesses struggling to meet inheritance tax bills without making difficult financial decisions.

In some cases, this could lead to the sale of land or assets, potentially breaking up farm businesses to meet tax liabilities.

The reforms form part of wider government efforts to reshape tax reliefs, with ministers arguing the higher threshold will ensure only the largest estates are affected.

The government has said raising the threshold will reduce the number of farms impacted, while maintaining support for smaller family operations.

However, concerns remain that the changes could reshape how family farms are passed down, with long-term implications for the structure of UK agriculture.

The full impact will depend on how widely the rules affect working farms and how businesses adapt their succession plans in the years ahead.