UK Farmers Urged to Act on Inheritance Tax Changes Before 2026 Deadline
Farmers and landowners throughout the United Kingdom are being strongly encouraged to reassess their financial arrangements in anticipation of significant inheritance tax reforms set to take effect next April. The Government confirmed in December that the threshold for Agricultural Property Relief and Business Property Relief will increase from £1 million to £2.5 million starting April 6, 2026.
This adjustment will enable spouses or civil partners to transfer up to £5 million in qualifying farming and business assets between them without incurring inheritance tax, in addition to existing allowances. For assets exceeding this level, partial relief will still apply, with a 50% reduction, resulting in an effective inheritance tax rate of up to 20% instead of the standard 40%.
Impact on Farming Estates and Government Rationale
The Department for Environment, Food and Rural Affairs (Defra) stated that the higher threshold will substantially decrease the number of farms and businesses facing larger inheritance tax bills, ensuring that only the most substantial estates are affected. Under initial Labour proposals, full 100% relief would have been restricted to the first £1 million of qualifying property.
However, the revised policy is projected to reduce the number of estates subject to higher tax bills from approximately 2,000 to about 1,100, primarily impacting the largest farms and landholdings. Announcing the change, Environment Secretary Emma Reynolds emphasized that the Government has listened to concerns from the farming community.
"Farmers are at the heart of our food security and environmental stewardship, and I am determined to work with them to secure a profitable future for British farming," she said. "We are increasing the individual threshold from £1 million to £2.5 million, meaning couples with estates of up to £5 million will now pay no inheritance tax on qualifying assets. It is only right that larger estates contribute more, while we back the family farms that are the backbone of rural communities."
Financial Planning and Expert Recommendations
With the new rules scheduled to commence on April 6, 2026, financial advisers are warning farmers and landowners to take immediate action to safeguard their estates. Experts suggest that gifting assets before the deadline could help secure the current 100% relief rules, though this carries risks if the donor passes away within seven years of the transfer.
Accountants at BDO noted that gifts and settlements made between October 30, 2024, and April 5, 2026, will initially fall under the existing inheritance tax regime and can typically be executed without triggering a lifetime tax charge. However, they cautioned that if the individual dies after April 5, 2026, and within seven years of the transfer, any tax due would be calculated under the new rules.
Transfers conducted after April 2026 will be fully subject to the revised system, meaning inheritance tax could apply to gifts placed into trusts where their value surpasses £2.5 million, plus any available nil-rate band. Farmers and landowners are also advised to review asset ownership structures, including whether property is held jointly between spouses, to maximize allowances.
Updating wills and considering the use of trusts before April 6 may further aid in reducing future tax liabilities. Advisers at Saffery highlighted that some individuals might opt to place up to £2.5 million of qualifying property into trust now, potentially alongside £325,000 of non-qualifying assets if their nil-rate band is available, to initiate the seven-year inheritance tax clock.
They added that ownership structures and other reliefs, such as Conditional Exemption and Woodlands Relief, will become increasingly crucial as the new inheritance tax framework is implemented. These changes represent a notable shift in inheritance tax policy for farming families and businesses, with experts stressing that early planning is essential to avoid unexpected tax bills after April 2026.
