Changes to agricultural and business property reliefs for inheritance tax

What is inheritance tax?

Inheritance tax is a tax charged on the estate of someone who has died.

Inheritance tax is charged at a 40% rate if the estate of a deceased person exceeds a threshold, known as the nil-rate band, which is set at £325,000.

What are inheritance tax reliefs?

An inheritance tax relief increases the tax-free threshold or reduces the value of an asset, therefore reducing the amount of tax that is payable.

There are several important inheritance tax reliefs, such as the spousal relief, in addition to the nil-rate band.

Among these reliefs, Agricultural Property Relief (APR) and Business Property Relief (BPR) allow estates to reduce the value of eligible agricultural or business property for inheritance tax.

Depending on certain criteria, relief is available at a 100% or 50% rate. 100% relief means that the entire asset is exempt from inheritance tax. Currently, there is no cap on how much wealth can be exempted from inheritance tax through APR and BPR. APR and BPR cannot be claimed on the same asset but operate independently of each other.

How many estates claim APR and BPR?

In 2021/22, 1,730 estates claimed APR and 4,170 estates claimed BPR. In the same year, APR cost the Treasury around £0.6 billion and BPR cost the Treasury around £1.1 billion.

The majority of the cost of the reliefs goes towards claims for assets worth over £1 million.

What changes were announced at Autumn Budget 2024?

At Autumn Budget 2024, the Labour government announced that, from April 2026, the availability of 100% relief for agricultural and business property would be capped. Assets eligible for 100% APR and assets eligible for 100% BPR would qualify for full relief up to a sum of £1 million. 50% relief would apply thereafter. The government is proposing to make assets eligible for BPR and APR (added together) count towards the £1 million cap.  

The government has said that the majority of estates claiming APR and BPR will not be affected by these changes. The government said that the changes are intended to target a wealthy minority of estates.

What effects are the changes expected to have?

HM Revenue and Customs (HMRC) has estimated that around 2,000 estates will pay more tax following the policy change. HMRC has also said that these are ‘static’ estimates, meaning they do not consider behavioural responses to the changes.

The Office for Budget Responsibility (OBR) said the projected revenue from the changes to APR and BPR would be £0.5 billion a year from 2027/28. The OBR added that this estimate was highly uncertain because of potential behavioural responses from potential taxpayers (for example, an increase in the use of the spouse exemption by married estates).

The OBR’s focus was on the effect of the policy on government receipts. It has therefore not looked at the number of estates potentially affected by the policy.

What reactions have there been?

Members of opposition parties have reacted negatively to the announcement, which has been a topic of sustained debate in the House of Commons since the Budget. Among other parliamentary activities, the changes to APR and BPR have been the subject of an opposition day debate and two urgent questions (on 4 November 2024 and 23 January 2025). The Environment, Food and Rural Affairs Select Committee also dedicated an oral evidence session to the subject as part of its inquiry on the future of farming.

Some economic think tanks, like the Institute for Fiscal Studies (IFS), broadly agree with the changes to APR and BPR. The IFS’ position is that assets should be taxed in a similar way, and by giving special treatment to agricultural and business property, the tax system favours certain types of assets over others.

Agricultural organisations, such as the Country Land and Business Association have argued that the changes to APR and BPR would have a negative effect on farming businesses, and could affect around 70,000 farms.

The Institute for Fiscal Studies (IFS) think tank has explained that estimates of the number of farms likely to be affected by the changes to APR and BPR can differ without implying only one of them is correct. This is because data from HMRC relates to the number of taxpaying estates, and data from other organisations relates to farms and farming businesses. As the IFS explains, “one estate could include only a share of a farm and/or could include multiple farms.” Additionally, there is debate over how to define the term ‘affected’, with some (such as agricultural estate and succession planning lawyer, Stuart Maggs) arguing that people who would have to intervene in their tax planning to avoid a tax charge should count as ‘affected’ by the changes to APR and BPR.