Farming and inheritance tax: the £2.5m cap from April 2026 (UK)

7 September 2026 · Inherit Vault

For most of the last forty years a working farm could pass to the next generation without a penny of inheritance tax. That ended on 6 April 2026. Agricultural relief still exists, it's just got a ceiling on it now, and the number everyone shouted about in 2024 isn't the one that finally landed.

What agricultural relief actually does

Agricultural property relief, APR to everyone who deals with it, takes qualifying farmland out of the inheritance tax sum. It covers the agricultural value of land, farm buildings, and the farmhouse that goes with them. It has never covered development value. A field with planning permission has always been two things at once: the farm bit, relieved, and the hope value sitting on top of it, taxed at the full whack.

The ownership test that catches people out

The property has to have been owned and occupied for agricultural purposes immediately before it's transferred. That's two years if the owner farmed it themselves, through a company they control, or through a spouse or civil partner. It's seven years if somebody else was farming it, which is the test that catches let land. Buy a farm and die eighteen months later and there's no relief at all, however agricultural it plainly is.

The £2.5m allowance

From 6 April 2026, the 100% relief allowance is capped. Agricultural relief and business relief now share a single £2.5m allowance per person. Anything above it drops to 50% relief, which against a 40% headline rate works out at an effective 20% on the excess. The word doing the work there is "combined": a farmer with land and a separate trading company doesn't get £2.5m for each of them.

It isn't £1m, whatever you read in 2024

The original announcement at the October 2024 Budget set the cap at £1m, and that's the figure that put tractors on Whitehall. It was raised to £2.5m in December 2025. A lot of articles still quote the old number, and so do a fair few accountants' letters that nobody's updated. If you're planning against £1m, you're planning against a figure that doesn't exist any more.

It's transferable, so a couple has £5m

Any unused part of the £2.5m allowance passes to a surviving spouse or civil partner. There's a claim to make, either within four years of the survivor's death or within six months of the executors taking up the role. Where the first spouse died before 6 April 2026, HMRC assumes the full £2.5m transfers across. So a married couple who own the farm between them are working with £5m before the cap does anything at all.

Gifts made since 30 October 2024 already count

This is the part that genuinely surprises people. Qualifying property given away on or after 30 October 2024 gets pulled back into the allowance if the donor dies within seven years of the gift. The allowance is applied in date order, earliest lifetime gift first, and whatever's left over is then shared across the qualifying property in the estate. Handing the farm to the children in early 2025 to get out in front of the rules didn't work.

Trusts get an allowance too, with strings

Qualifying agricultural or business property sitting in a trust also gets a £2.5m allowance, and how it applies depends on the type of trust and when it was set up. This is the one corner of the reform where paying a specialist is genuinely money well spent, rather than a reflex. If you're starting from scratch on what these things do, we've written up what a trust actually does that a will can't.

You can pay the bill over ten years

Tax on land, buildings and controlling shareholdings can be paid in ten equal annual instalments rather than up front. The first is due at the end of the sixth month after the death, you'll usually pay interest on the rest, and the whole balance falls due the moment you sell the asset. It's a cashflow tool, not a discount, but for a farm that can't be liquidated without ceasing to be a farm, it's the difference between a tax bill and a forced sale.

What farming families are actually doing about it

Mostly paperwork, which is the unglamorous truth. Establishing who owns which parcel, whether the farmhouse is genuinely character appropriate to the land, whether let ground has been let long enough to clear the seven year test, and what the bare agricultural value is once development hope is stripped out. None of that is quick, and all of it is much harder after a death than before one. The same goes for a limited company or a sole trader business, which now shares the very same allowance.

The reform didn't abolish agricultural relief. It turned it from something you could take for granted into something your executors have to be able to evidence, parcel by parcel, gift by gift, back to October 2024. Most farms hold that information in three ring binders and one person's head. The binders are fine. It's the head that's the problem, and writing down what's in it, where the deeds are and which gifts have already been made, costs nothing at all.

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