Last month the Government announced a major reverse in its planned change in the rules for inheritance tax (IHT), including agricultural property relief (APR) and business property relief (BPR) on farmland and business assets.

In her October 2024 Budget, the Chancellor Rachel Reeves ruled that above a £1m threshold, only 50% IHT relief would be applied from April 2026, resulting in an effective tax rate of 20% on agricultural assets valued over £1m.

The announcement was met with a mix of desperation and disbelief as farmers and others claimed the changes would make handing over family farms to the next generation unaffordable, threatening the long-term future of food production, environmental stewardship, agricultural businesses, and rural communities across the UK.

In November 2025 the Government announced that any unused £1m allowance could pass to a spouse or civil partner, increasing the potential combined threshold to £2m: then, in December, after months of pressure from farmers, the Government said it would increase the tax-free allowance from £1m to £2.5m.

After any other allowances and reliefs, any business or agricultural property farming part of anyone’s estate over £2.5m will be taxed at 20%, rather than the usual 40% rate.

From April 2025, land used for environmental schemes now explicitly qualifies for APR, encouraging participation in these schemes.

Whereas the headlines are encouraging and more beneficial than the originally proposed IHT charges, many businesses will still end up with a considerable tax bill to pay. Not everyone has a spouse or civil partner and is thus able to benefit from the additional £2.5m IHT relief.

The relief is on the combined agricultural property and business property assets and, whereas focus has been on the value of the farms themselves, there can often be significant value in business property assets, such as machinery and livestock.

We have seen increases in farmland values and machinery costs over recent years and unless these allowances rise with inflation, which we understand is not included in the proposals, then many farms which fall below the threshold now, will be subject to IHT in future.

Energy a factor

The original proposals would have forced many farmers to sell their family farms to pay the IHT bill, according to the National Farmers Union. The increase in the tax-free allowance from £1m to £2.5m will significantly reduce, or in some cases eliminate, the tax burden for family farms. For married couples, the change could produce a tax saving of as much as £600,000, due to an increase in their combined tax-free allowances from £2m to £5m. As David Corrie wrote last month, https://www.linkedin.com/posts/david-corrie-a670174a_agriculture-farmsuccession-inheritancetax-activity-7409253755185123328-kL8F/,

“the shift demonstrates that listening to rural voices matters. It reflects ongoing engagement from farming organisations, advisers, and estate professionals who emphasised the importance of protecting family farms and rural businesses when planning long-term succession”.

It is important to assess the overall business as some assets which you might think qualify for IHT relief don’t qualify or may not receive the full relief. One such asset is land used for renewable energy.

While land used for agricultural purposes such as growing crops and grazing livestock can qualify for APR, land used for a solar or wind farm is often treated as having lost its primary agricultural use, making it ineligible for APR except for the residual agricultural value, as when sheep graze under panels, for example.

APR covers only the agricultural value of the land – likely to be considerably lower than the market value if it has been let out for renewables, although there will be a different situation if the business runs the renewable development.

BPR is available for trading businesses such as a farm shop or food processing unit, but generally not for passive investments, such as land leased to a renewable energy developer. BPR may be available to someone who develops and operates wind or solar as part of a wider farming operation, depending on whether the overall business is considered "wholly or mainly" trading versus investment.

Inheritance and other tax changes over the past two years add considerably to the complexity of running many rural businesses, and it is important that farmers and owners seek advice to protect their businesses and position them for the future.

*At Galbraith, our rural teams specialise in helping clients with estate, farm and forestry assets. From our offices across Scotland and Northern England we manage and provide advice on farm, forestry, land and estate interests totalling more than 3.5m acres.