The government has confirmed it is to raise the threshold for inheritance tax relief on assets that qualify for agricultural property relief (APR) and business property relief (BPR) to £2.5 million, following months of intense lobbying from the National Farmers Union, FBUK and recommendations from various Commons and House of Lords select committees.
It’s an improvement for family farmers and business owners that faced inheritance tax (IHT) bills that would put many of their futures, and those of their employees, in doubt, according to Toby Tallon, tax Partner at professional services group S&W. But it doesn’t go far enough, he says.
“This is a welcome early Christmas present for many family farmers and business owners,” said Tallon.
“The reduction in inheritance tax relief first announced in the October 2024 budget left many living under a cloud of uncertainty as to whether they had a future. Farms and businesses that had been in families for generations faced mortgaging their future growth prospects or having to sell up to pay huge bills on the current owner’s death.
“The change of heart from the government will be gratefully received by many of our clients, after two budgets that did little to spread good cheer.”
The change, first announced in 2024 and confirmed by the Chancellor in her budget statement last month, removes the existing uncapped 100% APR and BPR that enables qualifying farms and family businesses to be passed on IHT-free. Instead, the 2024 budget proposed that after the first £1 million allowance, assets, including the land, property and machinery, would only benefit from 50% relief, resulting in an effective 20% IHT rate.
For many farms and family businesses, faced with paying charges based on their land and property values, regardless of their profits, the tax poses an “existential threat”, said Tallon.
Last month’s budget saw the Chancellor announce changes, allowing the transfer of this allowance between spouses/civil partners, bringing this into line with other IHT reliefs. That change meant an effective IHT-free allowance of £2 million. However, the budget also saw the government pushing ahead with the APR and BPR reforms.
The increase in the allowance from £1m to £2.5m is a change with even wider significance. It also means a combined relief of £5 million for couples.
“It’s an increase that should take many more farms and family businesses out of one of the country’s least popular taxes,” said Tallon. He added: “It’s another step in the right direction, but there is still a long way to go to provide the support our farmers and small business owners need to thrive for generations.”
“Restricting the inheritance tax reliefs on the transfer of qualifying family businesses and farms is an act of economic self-harm akin to imposing tariffs on your domestic industry. At a macro level it will result in lower tax revenue, fewer jobs, and lower economic growth. At an individual level, it puts businesses, their employees and their owners under significant stress and risk.”
“In my view, and many others, it’s simply a bad policy that should be scrapped, not just amended. At the very least, the government should put a pause on these proposals, to properly consult on the damage it will do to individuals, communities and the country.
“Other commentators have argued convincingly for a much higher APR/BPR allowance. With this increase in the allowance, the government seems to accept the reform is poorly targeted but doesn’t answer the wider criticisms of the proposals.”
