Following the 2025 Autumn Budget which brought a silver lining for married couples and those in a civil partnership with the transferability of the £1 million allowance, further good news was announced on 23 December 2025 with the increase in the threshold from £1 million to £2.5 million. The fear for the long-term viability of many farming businesses remains a concern but the increase will provide some welcome assistance.
As set out in the Summer Agricultural Brief, a significant amount of change was introduced in the 2024 Autumn Budget on 30 October 2024. Most relevant to those in the rural sector were the radical reforms to the critical reliefs of Agricultural Property Relief (APR) and Business Property Relief (BPR) for inheritance tax which are due to come in from 6 April 2026. These reliefs are extremely valuable for business owners operating a trading business or those owning agricultural assets.
The position was that prior to the 2024 Autumn Budget, provided assets met the criteria for APR and BPR, relief from inheritance tax could be claimed at 100% in most cases. This was hugely valuable to farming families and meant that they could pass on agricultural assets and the family business intact to future generations. In the 2024 Budget, changes were announced so that from 6 April 2026, 100% relief will only be available for the first £1 million of combined agricultural and business property and the remainder of the qualifying assets would be subject to inheritance tax at half the standard rate, i.e. an effective rate of 20%. The positive point to note was that where the assets qualify for APR/BPR and tax is being paid, this can be paid in interest-free instalments over the 10-year period where usually if the instalment option is used, interest would accrue.
Despite lobbying from various groups, the main change to the announcement in the 2004 Autumn Budget in the 2025 Autumn Budget was that the £1 million band of relief could be transferred between spouses and civil partners, rather than potentially being lost on the first death.
A further surprise announcement came on 23 December 2025, whereby the Government confirmed that the individual threshold would be raised from £1 million to £2.5 million. The Treasury has confirmed that the draft Finance Bill 2026 will be updated in January to include this change. This therefore means that qualifying assets with a value of up to £5 million could be passed on free of inheritance tax between the couple. The somewhat unexpected move from the Government follows strong lobbying by various farming organisations including the CLA and NFU, which have been arguing that the changes would be very damaging to rural businesses and put immense pressure on viability, cash flow and profitability.
Where the first spouse or civil partner died before 6 April 2026, it will be assumed that the entirety of the £2.5 million allowance will be available for transfer. It is important to remember that there is no such thing as a common law spouse and therefore this will only apply to couples who are married or in a civil partnership. Another point to bear in mind is that while two allowances can be claimed on the second death, if everything is passing into a discretionary trust created through the will of the second to die, there will only be one allowance for the trust going forward.
While each client’s affairs will need to be considered on their own facts, there remains merit for clients to review their estate planning and will arrangements now to ensure matters are structured in the most beneficial manner to enable their wishes to be implemented as far as possible.
Although the new rules do not come into effect until 6 April 2026, anti-forestalling measures mean that any gifts made after the budget, and where the person making the gift dies within seven years, the gift will be subject to the new rules when considering the tax position on their death.
There are a few situations where the rate of relief for the agricultural property or business property is at 50% currently and this will not be affected by the new rules nor taken into account for the £2.5 million allowance.
Although draft legislation has been released, there remains ambiguity as to exactly how the allowance will work in practice, particularly in relation to trusts. As has been seen from the December press release, until the legislation is finalised further tweaks, while unlikely, are potentially possible. Further clarity is urgently requested from the Government.
In addition, it was confirmed in the Autumn 2025 Budget that the allowances for the nil-rate band (£325,000), residence nil rate band (£175,000) and the APR/BPR allowance will remain frozen at their current levels until April 2031. With indexing not starting for just over five years (and it could be delayed further), there is the chance that even where the £2.5 million/£5 million, coupled with the nil rate band(s), provides sufficient cover currently, this will not be enough in a few years’ time.
It is sensible for clients to keep their affairs under review in order to take advantage of existing reliefs while being mindful of further changes. There remains a window of opportunity for planning before the forthcoming changes take place fully in April 2026, but it is important to act soon to allow sufficient time for matters to complete. Please contact Charlotte Coombs or a member of our private client advisory team for further advice.
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The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at December 2025.