New Inheritance Tax Rules for Business Owners and Farmers from April 2026

18 December 2025

Building a Business, Estate Planning / IHT, Reducing Tax

When it comes to inheritance tax planning, Business Relief (BR) and Agricultural Relief (AR) have been two of the most powerful tools available.

Previously known as Business Property Relief and Agricultural Property Relief, for decades they’ve allowed families to pass down business interests and agricultural assets without facing a large IHT bill.

That position is now changing, however following recent government announcements, this is not quite as drastically as first feared.

After the original reforms announced in Budget 2024, and further detail in Budget 2025, the government has now confirmed an important update:
from 6 April 2026, a new £2.5 million threshold for 100% relief will apply, replacing the previously announced £1 million cap.

For business owners, farmers, landowners and those holding substantial unquoted trading company shares, these changes still represent a major shift, and they make forward planning more important than ever.

Let’s look at how the reliefs work today, what is changing from April 2026, and what this means in practice

How Business Relief Works

Business Relief reduces the value of qualifying business assets for IHT purposes.

It currently applies to:

Sole trader or partnership businesses
Shares in an unquoted trading company
Assets used wholly or mainly in a trade
AIM-quoted shares

To qualify you generally need to have owned the assets for at least two years.

Current relief levels:

100% BR — often available for shares in an unquoted trading company or a business interest you control
50% BR — available on certain business assets, such as land or machinery owned personally and used in the business

And crucially there is currently no cap on the value you can shelter from IHT.

Agricultural Relief: A Cornerstone of Farming Succession

Agricultural Relief protects the agricultural value of qualifying assets such as farmland, buildings and some farmhouses.

The ownership rules differ slightly:

2 years if you farm the land yourself
7 years if it’s let to a tenant

Like BR, AR can currently provide up to 100% relief, with no limit on the value protected.

The Big Change: New Thresholds from 6 April 2026

From April 2026, the government will introduce a cap on full relief, applying jointly to Business Relief and Agricultural Relief.

The revised position (December announcement)

£2.5 million threshold per individual for 100% relief
Applies across BR and AR combined
Any qualifying assets above £2.5 million will receive 50% relief

This represents a significant softening compared to the original £1 million proposal, but it still marks the end of unlimited relief for larger estates.

What does 50% relief mean in practice?

Assets above the £2.5 million threshold will be subject to IHT at an effective rate of 20% (rather than being fully exempt).

Spouses and Civil Partners: A £5 Million Opportunity

One of the most important confirmations is that the allowance will be fully transferable between spouses and civil partners.

This means:

Each individual has a £2.5 million 100% relief allowance
A married couple or civil partners can pass on up to £5 million of qualifying business and agricultural assets tax-free
This is in addition to existing nil-rate bands (£325,000 each, also transferable)

The rules will also apply where a spouse or civil partner died before the introduction of the new regime.

The Impact in Practice: A Real-World Example

Here’s how the numbers stack up for someone with:

Home: £650,000
Investments/savings: £100,000
Unquoted trading company shares: £8,400,000

Before April 2026

All £8.4 million of company shares qualify for 100% BR.

Chargeable estate: £100,000
IHT at 40%: £40,000

From April 2026 (new £2.5m threshold)

First £2.5 million qualifies for 100% BR
Remaining £5.9 million qualifies for 50% relief

Taxable portion of business assets:
£5.9m × 50% = £2.95 million

Total chargeable estate: approx. £3.05 million
IHT at 40%: £1.22 million

That’s over £1.18 million of additional inheritance tax, caused purely by the reform, with no change in asset values, ownership or business structure.

New IHT rules from 2026 could add over £1m to the liability due on your estate, This is why.

This illustrates just how significant the impact may be for business owners and families holding sizeable trading or agricultural assets.

AIM-Listed Investments: No Change in Treatment

It’s important to note:

AIM-listed shares still qualify for Business Relief
From April 2026, they will receive 50% relief
No £2.5 million allowance applies to AIM shares
This remains unchanged by the latest announcement

As a result, AIM portfolios continue to require careful review as part of wider estate planning.

Who Is Most Affected?

Despite the increased threshold, the reforms will still primarily affect:

Owners of large private companies
High-value trading businesses
Larger family farms
Estates with substantial unquoted shareholdings

However, the government estimates that around 85% of estates claiming Agricultural Relief will pay no more IHT as a result of the reforms, with the changes now better targeted at the largest estates.

What Should Business and Land Owners Be Doing Now?

Even with changes to the thresholds, planning remains essential.

Now is the time to consider:

Gifting strategies
Trust planning
Restructuring shareholdings
Using family investment vehicles
Reviewing partnership agreements
Considering lifetime transfers while unlimited relief still applies

Although reliefs will remain generous compared to most other assets, the era of unlimited Business and Agricultural Relief is coming to an end.

Final Thoughts

The 2026 reforms represent the most significant shift to Business Relief and Agricultural Relief in decades.

While the increased £2.5 million threshold will protect many family businesses and farms, owners of higher-value estates could still face substantial new inheritance tax liabilities without careful planning.

The message is clear: review your position as soon as possible and plan ahead.

Even after the new rules take effect, there will still be valuable opportunities to structure your estate more efficiently but the earlier you start, the more options you’ll have.

Getting in touch

Inheritance tax planning has always been complex, and the introduction of new limits, relief bands and effective dates only adds to that complexity.

We stay on top of the changes, assess how they affect real families and businesses, and help our clients plan in the most tax-efficient and practical way.

If you’d like to discuss your situation or request an inheritance tax review, call us on 01634 731390 or email Jan Friend.

We’d be happy to help you navigate the new landscape with clarity and confidence.