Following the governments U-turn just before Christmas, HMRC have now released the updated policy paper on the changes for landowners, business owners, and private clients planning their estates.
Following last year’s controversial reforms to Agricultural Property Relief (APR) and Business Property Relief (BPR), the government has confirmed that from 6 April 2026, the combined £2.5 million allowance for 100% relief on qualifying agricultural and business assets will be transferable between spouses and civil partners. Relief at the lower rate of 50% will apply to the value of any qualifying relievable property over £2.5 million. Combined with the nil-rate bands, this means two individuals could pass on up to £5.65 million tax-free between them.
Background – The APR/BPR cap
Historically, APR and BPR provided unlimited 100% relief from Inheritance Tax (IHT) on qualifying assets, safeguarding family farms and trading businesses. However, the 2024 Budget introduced a cap: from April 2026, the first £2.5 million of combined APR/BPR assets will attract 100% relief, with any excess qualifying value receiving only 50% relief (resulting in an effective IHT rate of 20%).
The initial change was widely criticised for increasing complexity and potential tax exposure for larger estates. The 2025 Budget softened the blow by allowing unused APR/BPR allowance to be transferred to a surviving spouse or civil partner, creating a potential combined buffer from £2 million to £5 million on second death.
Why this matters
- Estate planning flexibility: Couples can now structure ownership and succession planning with greater confidence, knowing that relief can be maximised across both estates.
- Mitigating IHT exposure: For farming families and business owners, this measure reduces the urgency to “use up” the allowance on first death.
- Interaction with other allowances: This transferable APR/BPR allowance sits alongside the Nil Rate Band (£325,000) and Residence Nil Rate Band (£175,000), which remain frozen until April 2031.
- Any unused amount of the £2.5 million allowance can be transferred to a surviving spouse or civil partner from 6 April 2026.
- If the first death was before 6 April 2026, it will be assumed the entirety of the £2.5 million allowance will be available for transfer to the surviving spouse or civil partner.
- A £2.5 million allowance will also apply to the combined value of relievable agricultural and business property in trusts.
Key considerations
- Timing: The new rules apply from 6 April 2026.
- The rate of business property relief available will be reduced from 100% to 50% in all circumstances for shares admitted to trading on recognised stock exchanges designated as ‘not listed’.
- The rate of relief will also reduce from 100% to 50% for qualifying shares listed on foreign exchanges which are not a recognised stock exchange.
- The option to pay Inheritance Tax by equal annual instalments over 10 years interest-free will be extended to all property which is eligible for agricultural property relief or business property relief.
- The method to calculate rates of Inheritance Tax on trust exit charges will be standardised so that all exit charges will be calculated based on unrelieved values, regardless of whether the exit takes place before or after the first 10-year anniversary.
At Dafferns, we specialise in helping clients navigate complex tax changes. If you would like to discuss how this impacts your estate or business, please contact our Private Client Tax team.
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