Policy paper

Summary of reforms to agricultural property relief and business property relief

Published 30 October 2024

Introduction

The government announced reforms to agricultural property relief and business property relief from inheritance tax at Autumn Budget 2024.

Changes from 6 April 2025

The government has confirmed it will extend the existing scope of agricultural property relief from 6 April 2025 to land managed under an environmental agreement with, or on behalf of, the UK government, devolved governments, public bodies, local authorities, or relevant approved responsible bodies. Legislation will be included in Finance Bill 2024 to 2025 and details were set out in the consultation response published by the previous government at www.gov.uk/government/consultations/taxation-of-environmental-land-management-and-ecosystem-service-markets.

Changes from 6 April 2026

The government has also announced it will reform agricultural property relief and business property relief from 6 April 2026. Relief of up to 100% is currently available on qualifying business and agricultural assets. In addition to existing nil-rate bands and exemptions, the 100% rate of relief will continue for the first £1 million of combined agricultural and business property to help protect family farms and businesses, and it will be 50% thereafter. The government will also reduce the rate of business property relief available from 100% to 50% in all circumstances for shares designated as “not listed” on the markets of recognised stock exchanges, such as AIM. A full list of recognised stock exchanges can be found at  www.gov.uk/government/publications/designated-recognised-stock-exchanges-section-1005-income-tax-act-2007.

The reforms mean the majority of claims for these reliefs will be unaffected. Almost three-quarters of estates claiming agricultural property relief and the majority of estates claiming business property relief in 2026 to 2027 are expected to be unaffected by these reforms. This means more than 3,000 estates making claims each year are expected to be unaffected. The reforms are expected to only affect around 2,000 estates each year from 2026 to 2027, with around 500 of these claiming agricultural property relief and around 1,000 of these holding shares designated as “not listed” on the markets of recognised stock exchanges.[1]

The government has decided to retain these reliefs but better target them, as it is not fair or sustainable for a very small number of claimants each year to claim such a significant amount of relief. This also contributes to the very largest estates paying lower average effective inheritance tax rates than smaller estates. More information is in the statistical annex at the end of this summary and in section 4.4 at www.gov.uk/government/statistics/inheritance-tax-liabilities-statistics/inheritance-tax-liabilities-statistics-commentary#iht-liabilities-and-taxpaying-estates.

Detailed summary of reforms from 6 April 2026

A more detailed summary of the reforms from 6 April 2026 is below. The government will publish a technical consultation in early 2025. This will focus on the detailed application of the allowance to lifetime transfers into trusts and charges on trust property. This will inform the legislation to be included in a future Finance Bill.

The £1 million allowance

A new allowance will apply to the combined value of property in an estate qualifying for 100% business property relief and 100% agricultural property relief. For example, the allowance will cover £1 million of property qualifying for business property relief, or a combined £400,000 of agricultural property relief and £600,000 business property relief qualifying for 100% relief.

If the total value of the qualifying property to which 100% relief applies is more than £1 million, the allowance will be applied proportionately across the qualifying property. For example, if there was agricultural property of £3 million and business property of £2 million, the allowance for the agricultural property and the business property will be £600,000 and £400,000 respectively.

Assets automatically receiving 50% relief will not use up the allowance and any unused allowance will not be transferable between spouses and civil partners.

The allowance covers the following transfers:

  • property in the estate at death

  • lifetime transfers to individuals in the 7 years before death (“failed potentially exempt transfers”)

  • chargeable lifetime transfers where there is an immediate lifetime charge, so for example when property is transferred into trust

Where the rate of relief for the agricultural property or business property is at 50%, for example quoted shares in company giving the transferor control, the rate of relief will not be affected by the new allowance. 

£1 million allowance for trusts

The trustees of certain trusts are liable to an inheritance tax charge of up to 6% of the value of property held in a trust every 10 years. There is also an exit charge when property leaves the trust. Agricultural property relief and business property relief can apply to property in trust.

There will be a combined £1 million allowance for trustees on the value of qualifying property to which 100% relief applies, on each ten-year anniversary charge and exit charge, consistent with the treatment of qualifying property chargeable to inheritance tax on death.  The government will publish a technical consultation in early 2025 on the detailed application of the policy to charges on property within trust.

Settlors may have set up more than one trust comprising qualifying business property and/or agricultural property before 30 October 2024, in which case from 6 April 2026, each trust would have a £1 million allowance for 100% relief.  

The government intends to introduce rules to ensure that the allowance is divided between these trusts where a settlor sets up multiple trusts on or after 30 October 2024.

The rates of relief

The rates of relief will apply in the following way for transfers on or after 6 April 2026.

First £1 million

The existing 100% rate of relief will continue to be available for the first £1 million of property qualifying for business property relief and agricultural property relief.

The existing rate of relief will continue at 100% where it is currently this rate. The exception is for shares designated as “not listed” on the markets of recognised stock exchanges, such as the AIM, where the rate of relief will be 50% and will not be affected by the new allowance.

The existing rate of relief will continue at 50% where it is currently this rate and will also not be affected by the new allowance.

Over £1 million

The existing 100% rate of relief will be 50% for the value of any qualifying assets over £1 million. For example, this means an interest of £2 million in shares in an unquoted company would attract 100% relief on the first £1 million and 50% relief on the second £1 million. This means a potential inheritance tax liability of £200,000, and an effective inheritance tax rate of 10% before the application of any other exemptions and the nil-rate band.

The rate of relief for shares designated as “not listed” on the markets of recognised stock exchanges will be 50%.

The existing rate of relief will continue at 50% where it is currently this rate.

Lifetime transfers prior to 6 April 2026

The new rules will apply for lifetime transfers on or after 30 October 2024 if the donor dies on or after 6 April 2026. This prevents forestalling. For example, a lifetime gift of unquoted shares of £2 million made on or after 30 October 2024 will be a failed potentially exempt transfer if the donor dies within 7 years. 100% relief would apply to the first £1 million and 50% to the next £1 million under the new rules if the recipient owned the shares until the donor’s death and the donor’s death is on or after 6 April 2026.

Nil-rate band and other exemptions

Estates will continue to benefit from the nil-rate band, residence nil-rate band, and other exemptions (such as for transfers between spouses and civil partners). Transfers to individuals more than 7 years before death will continue to fall outside the scope of inheritance tax in the normal way.

Payment

Inheritance tax liabilities relate to the overall value of the estate so these can be paid from the proceeds following the disposal of other assets within an estate or by other means. Liabilities relating to agricultural and business property can currently be paid in equal annual instalments over 10 years in certain circumstances. More detail is available at www.gov.uk/paying-inheritance-tax/yearly-instalments.

Statistical annex: distribution of claims at death for agricultural property relief and business property relief in 2021 to 2022

The tables below provide information on claims at death in 2021to 2022, the latest available data. These tables include the value of assets qualifying for relief and the estimated tax cost to the Exchequer. Qualifying assets could be subject to 100% or, more rarely, 50% relief.

Agricultural property relief

2021 to 2022

Value of assets qualifying for relief Number of claims Proportion of total claims Total value of assets qualifying for relief (m) Proportion of total value of assets qualifying for relief Median value of qualifying assets (£) Estimated tax cost to the Exchequer (£m) Proportion of tax cost to the Exchequer
£0 to £250,000 474 27% 49 3% 99,200 16 3%
£250,000 to £500,000 398 23% 150 10% 382,000 38 7%
£500,000 to £1m 392 23% 281 18% 700,000 88 16%
£1m to £2.5m 345 20% 533 34% 1,470,000 188 34%
£2.5m to £5m 80 5% 259 16% 2,930,000 100 18%
More than £5m 37 2% 302 19% 6,350,000 119 22%
Total 1,730 100% 1,570 100% 486,000 550 100%

Totals may not sum due to rounding to 3 significant figures.

Business property relief

2021 to 2022

Value of assets qualifying for relief Number of claims Proportion of total claims Total value of assets qualifying for relief (m) Proportion of total value of assets qualifying for relief Median value of qualifying assets (£) Estimated tax cost to the Exchequer (£m) Proportion of tax cost to the Exchequer
£0 to £250,000 2,440 59% 236 8% 85,000 66 6%
£250,000 to £500,000 653 16% 236 8% 348,000 79 8%
£500,000 to £1m 533 13% 377 13% 702,000 127 12%
£1m to £2.5m 394 9% 595 21% 1,450,000 221 21%
£2.5m to £5m 95 2% 325 11% 3,320,000 128 12%
More than £5m 63 2% 1,080 38% 8,040,000 430 41%
Total 4,170 100% 2,850 100% 200,000 1,050 100%

Totals may not sum due to rounding to 3 significant figures. 

HMRC does not routinely data capture the type of business property relief qualifying shares from IHT400 accounts into its digital systems, as it is not currently required for the administration of the tax. Around 40% of all estates claiming business property relief claimed it on AIM shares (at least partially) in a sample of 2021 to 2022 tax returns. Around 20% of the value of all qualifying investments for business property relief were AIM investments. HMRC estimate the tax cost to the Exchequer relating to AIM shares was £185 million.


[1] Source: HMRC analysis.