Article by Emma Florentin-Lee, an Equity Partner at Oury Clark
From April 2026, changes to the inheritance tax (IHT) rules will affect how agricultural property relief (APR) and business property relief (BPR) apply. These changes will impact many farming families, increasing the potential for IHT liabilities when land and business assets are passed to the next generation.
Here’s what you need to know and what you can do now to prepare.
Key changes from 6 April 2026
Currently, assets qualifying for APR or BPR receive either 50 per cent or 100 per cent relief from IHT depending on the asset type. From 6 April 2026, assets qualifying for the 100 per cent relief will be capped at £1 million per person, across both APR and BPR combined.
Assets above that cap will only qualify for 50 per cent relief.
This £1 million cap is per individual. It’s important to note any unused amounts cannot be transferred between spouses or civil partners.
What qualifies for APR?
In order to stay ahead of the changes, it’s important to establish what qualifies for APR. Put simply, APR only applies to qualifying agricultural property. This includes:
- Agricultural land or pasture
- Buildings used in connection with the intensive rearing of livestock or fish
- Woodland if ancillary to agricultural land
Farmhouses, cottages and farm buildings – if they’re appropriate in character and occupied with the land for the purposes of agriculture.
Activities that generally qualify as agriculture:
- Growing crops or raising animals for food
- Supporting livestock production (e.g. for wool or dairy)
- Working animals
- Nurseries growing plants, turf, trees or food crops
- Breeding horses (not racing)
- Hop growing
- Short rotation coppice or energy crops
As farmers have diversified their business the definition of agricultural property is being tested more than ever. Examples of activities which do not fall within the definition of agricultural property would be:
- Hosting entertainment events
- Diversification activities (e.g. paintballing)
- Commercial letting of barns or cottages for non-farm use
- Wind farms
It should be pointed out that some of those items above not qualifying for APR may qualify for BPR.
To qualify for APR, the land must have been:
- Owned and actively farmed for 2 years prior to the transfer or date of death, or
- If the land is let to someone else to farm, then it must be held for 7 years prior to the transfer or date of death.
Why it matters and what you can do now
With farms typically holding high-value land and business assets but limited cash, these changes are expected to bring larger IHT liabilities for many families on estates which may not have the cash to settle these liabilities.
But, you can take steps to reduce your potential tax exposure before the changes come into force:
Split ownership between spouses
- If one spouse currently holds all assets, consider transferring some to the other. This will allow each person to use their own £1m cap – effectively protecting up to £2m of APR/BPR assets per couple.
Use lifetime gifting
- A good way to mitigate your tax exposure is to consider gifting assets to family members in your lifetime.
- This is especially effective as, if you live for seven years after the gift, it will fall outside your estate for IHT. Even if you die before the full 7 years, taper relief may be available which can reduce the inheritance tax payable.
- Be aware that a gift as part of an IHT strategy could crystalise capital gains tax. Careful planning may be able to mitigate or reduce any capital gains tax payable.
Use family partnerships or trusts
- Spreading ownership of farming assets across children or other family members maximises the use of individual relief caps. This may be done through restructuring, and forming partnerships or trusts.
Consider life insurance
- Taking out a life insurance policy written in trust can be a cost-effective way to cover future IHT bills.
- Although this can be expensive – especially for older individuals – in most cases it is more affordable than paying IHT from your estate.
Review your will
- Make sure you review your will to ensure it reflects any planning done in your lifetime (such as restructuring or lifetime gifts).
- A legal or tax adviser can check how your estate is impacted by the new rules – and whether redrafting your will is beneficial.
Next steps
To conclude, given the changes mentioned above, and the fact that farming families tend to be asset-rich but cash-poor, we expect them to incur more IHT bills from April 2026. However, there are a few practical steps you can take to mitigate this.
If you haven’t reviewed your estate planning recently, now is the time! Restructuring assets between spouses, using lifetime gifting, and tweaking your life insurance policy as well as your current asset holding structures, are just some of the ways you can mitigate your IHT bill. In this transitionary period, it’s also important to consult a trusted adviser who understands APR, BPR, and the specific challenges farming businesses will be facing in the coming months.
Emma Florentin-Lee is an Equity Partner at Oury Clark. She specialises in Accounts, Audit, Tax (both corporate and personal) and Trusts, bringing a comprehensive approach to client services.